Federal Trade Commission Issues Stay of Amended Telemarketing Sales Rule’s Prohibition on Abandoned Calls and Corresponding Safe Harbor Provisions
In a significant development for the telemarketing industry, the Federal Trade Commission on March 28, 2003 agreed to delay by six months the effective date of the prohibition on abandoned calls and the corresponding safe harbor provisions contained in its recently amended Telemarketing Sales Rule (TSR). This result followed several months of legal and administrative efforts, described chronologically below.
On January 29, 2003, The Direct Marketing Association, represented by Piper Rudnick LLP, filed its complaint challenging provisions of the FTC’s amendments to the TSR in Federal District Court for the Western District of Oklahoma (U.S. Security et al. v. FTC, No. CIV 03-122-W (W.D. Ok.)). On February 27, 2003, The DMA requested an administrative stay from the FTC on two provisions of the amended TSR on the grounds that compliance by the March 31, 2003, deadline would be extremely difficult: first, the prohibition on abandoned calls; and second, the requirement that a telemarketer obtain from the consumer the last four digits of the consumer’s credit card and record the entire transaction in situations where a transaction is a free-to-pay conversion using preacquired account information.
The FTC granted in part and denied in part The DMA’s request. The Commission stayed until October 1, 2003, the abandoned call safe harbor requirement to leave a recorded message if a live operator is unavailable and the corresponding recordkeeping requirements. The Commission, however, kept in place the other requirements of the safe harbor, including the 3 percent limit on abandoned calls. The request to stay the preacquired account provisions was denied.
On March 10, 2003, The DMA filed for a preliminary injunction ("PI") in its case in Oklahoma City seeking an injunction on the prohibition of abandoned calls and corresponding safe harbor, which requires (1) an abandoned rate of no more than 3 percent of all calls answered by a person, measured per day per campaign; (2) allowing the telephone to ring for at least 15 seconds or four rings before disconnecting an unanswered call; (3) whenever a sales representative is not available to speak with the person answering the call within two seconds after the person’s completed greeting, the seller or telemarketer promptly play a recorded messages that states the name and telephone number of the seller on whose behalf the call was placed; and (4) the maintenance of records demonstrating compliance with these safe harbor provisions.
On March 27, 2003, a hearing on The DMA’s request for preliminary injunction took place before Judge Lee West in Oklahoma City. Following the hearing, The DMA filed a Supplemental Petition to the FTC requesting that, irrespective of the outcome of the PI, the Commission reconsider its denial of stay of the abandoned call prohibition and 3 percent safe harbor requirement in light of additional affidavits submitted in the PI proceeding. These affidavits contained statements from telemarketers, service bureaus, and manufacturers of predictive dialing equipment indicating that existing technology could not attain the 3 percent requirement by the March 31 deadline. On March 26, 2003, Judge West issued an order denying the request for preliminary injunction. Judge West’s order stated that "the potential harm of abusive and unfair telemarketing acts and practices that consumers will suffer if enforcement of these two amendments is delayed outweighs any potential financial harm to the plaintiffs."
Even though the PI was denied, as a direct result of the efforts described above, DMA members obtained significant relief when the FTC, on Friday, March 28, 2003, voted to stay the abandoned call prohibition and its safe harbor until October 1, 2003. As primary justification for its ruling, the Commission cited the facts set forth in the affidavits submitted by The DMA.
In another action challenging a different provision of the TSR, a Temporary Restraining Order (TRO) hearing was held on Friday, March 28 in D.C. federal district court on behalf of Stonebridge Life Insurance Co. seeking a stay of the TSR as applied to service bureaus that provide telemarketing services to businesses outside of the FTC’s jurisdiction (Stonebridge Life Insur. v. FTC, cv. 00739-RJL, D.D.C). The TRO motion was denied.
The DMA is proceeding with its challenge to the statutory authority for and constitutionality of the national do-not-call list, the abandoned call regulations and the pre-acquired account restrictions before the same U.S. District court judge that denied its preliminary injunction request.
Federal Communications Commission Seeks Further Comment on Amending its Telemarketing Rules
On March 25, 2003, the FCC released a Further Notice of Proposed Rulemaking (FNPRM) requesting comment on the requirements contained in the DNC Act, Pub. L. No. 108-10. The DNC Act requires the FCC to complete its pending rulemaking on the Telephone Consumer Protection Act (TCPA) by September 7, 2003, including the FCC’s consideration of whether or not to adopt a national do-not-call registry. The DNC Act also requires the FTC and the FCC each to report to Congress within 45 days of the FCC’s Order on any inconsistencies with the FTC’s TSR, and the effects of and remedies for such inconsistencies. The two agencies also must separately submit annual reports to Congress on the effectiveness of the national DNC list, the number of consumers on the list, the number of marketers and fees paid to access the list, efforts to coordinate with state do-not-call lists, and a review of enforcement proceedings. In the FNPRM, the FCC seeks further comment on how it can maximize consistency of its TCPA rules with the TSR. In particular, the FCC asks how the goals and principles of the DNC Act should affect the FCC’s implementation of the TCPA and how to harmonize the FCC’s statutory mandate in the TCPA. The FCC also seeks comment on how to fulfill its reporting obligations.
Comments and reply comments will be due 30 and 45 days after publication of the FNPRM in the Federal Register, which has not yet occurred.
Federal Trade Commission Seeks Comment on Fees For Accessing the Do-Not-Call List— Announces Do-Not-Call List will be Effective on October 1, 2003
On March 31, 2003, the FTC issued a revised notice of proposed rulemaking (NPRM) on the collection of fees for its national do-not-call (DNC) list, effective October 1, 2003. The FTC originally had issued for comment a proposal to collect fees for implementation of a national do-not-call list on May 29, 2002. Several parties challenged the proposal’s consistency with the Independent Offices Appropriations Act, the stated basis for the FTC’s authority to collect fees for the DNC list. In its Statement of Basis and Purpose adopting a national do-not-call list and amending other parts of the TSR, the FTC indicated that it would issue a revised fees NPRM. In February 2003, the DNC Act, and language in the fiscal year 2003 omnibus appropriations bill, were enacted, giving the FTC authority to collect fees for the DNC list, estimated in the appropriations bill at $18.1 million for the first year.
Access to the Registry
. In the revised NPRM, the FTC proposes to broaden access to the DNC list from its original proposal to limit access to only those telemarketers subject to the FTC’s jurisdiction, who need access to the list in order to comply with the TSR. Specifically, the FTC proposes to make the list accessible to telemarketers, sellers, "others engaged in causing others to engage in telephone calls for commercial purposes," and service providers. Certification that access to the list is only to comply with the TSR or otherwise prevent calls to telephone numbers on the registry would be required. Thus, a non-covered entity (such as a bank or telephone company) could access to list in order to avoid soliciting consumers on the list, who may be unreceptive to telemarketing.Who Pays the Fee?
The FTC’s original proposal drew criticism that it would require telemarketers and sellers to pay the fee to access the list multiple times, as in the case where a seller uses more than one telemarketer in any year. In the revised NPRM, the FTC clarifies that it does not intend to charge the same firm more than once a year for access to the list. Under the current proposal, each seller would have to pay the fee to access the list before it or any telemarketer working on its behalf placed an outbound call. Sellers would receive an account number upon payment of the fee, and telemarketers for the seller could use the account number to access the list for its campaigns on behalf of that seller. Pure telemarketers do not have to pay a separate fee to access the registry, but they must ensure that their seller clients have paid for access to the list. Sellers and telemarketers who did not ensure that the proper fee was paid would be liable for violations of the TSR.The FTC retained its proposal from the original NPRM that divisions, subsidiaries and affiliates of a seller must each pay to access the registry. A corporation need only download the information once, and then share it among its divisions, but each division must pay a separate fee to access the registry. This is likely to draw substantial comment, given the lack of clarity in the revised NPRM over what constitutes a separate division, subsidiary or affiliate.
Calculation of Fees
. The FTC originally estimated that 3,000 entities would have to pay to access the list. In the revised NPRM, the FTC stated that DialAmerica’s claim to have 700 clients suggests that the original estimate was too low. Based almost exclusively on DialAmerica’s submission of its client base and revenues, and using many speculative assumptions (many of which are based on pure guesswork by the FTC), the FTC now proposes to divide the $18.1 million year-one cost of the list among 7,500 entities. Fees will continue to be based on area code, but the FTC revised the per area code charge up to $29 if accessed during the first six-month period of a year, except that firms needing one to five area codes would not be charged. Access for each new area code requested during the second six months of the year would be $15. Entities needing access to 250 or more area codes would be charged a maximum of $7,250, although the FTC stated that it expects to reexamine and readjust its fee calculations.Operation of the Registry
. Under the current proposal, sellers and telemarketers will receive only consumer phone numbers (not names), organized by area code. Companies can check smaller groups of 10 or fewer numbers at a time to avoid having to download a large list of numbers in a particular area. Telemarketers can access the list as often as they like, once their seller-clients have paid to access the list. The current proposal would require the use of a list that is no more than three months after the date the list was accessed.Relevant Dates
. The FTC awarded the contract to operate the list to AT&T on March 2, 2003. Under the current proposal, sellers and telemarketers would be able to begin accessing the list on September 1, 2003. Full compliance with the national do-not-call list will be required on October 1, 2003.This article is intended to provide clients with information on recent legal developments. It should not be construed as legal advice or legal opinion on specific facts. Pursuant to applicable Rules of Professional Conduct, it may constitute advertising.
