FCC Will Enforce Oct. 1 Effective Date for National Do-Not-Call Registry; Other Telemarketing Rules Begin Taking Effect

In a continuing series of legal developments regarding implementation of the National Do-Not-Call database (“DNC Registry”), the FCC announced late yesterday that it would enforce the DNC Registry’s original Oct. 1 effective date. While both the FCC and the Federal Trade Commission (“FTC”) recently adopted rules regulating a variety of  telemarketing practices, the agencies’ rules requiring the implementation of the DNC Registry have received the majority of attention in the press. Under both FTC and FCC DNC rules, the FTC is responsible for the maintenance of the DNC Registry. However, as described below, over the past week the FTC’s ability to implement and maintain the DNC Registry has been subject to several successful legal challenges, which has led the FCC, at least initially, to assume the lead role in enforcing the DNC Registry.

On Sept. 23, 2003, the U.S. District Court for the Western District of Oklahoma ruled that the FCC, not the FTC, has the statutory authority to oversee the DNC Registry. Consequently, on Sept. 25, 2003, Congress overwhelmingly passed legislation giving the FTC the requisite statutory authority to operate the DNC Registry. President Bush signed that legislation yesterday. Also on Sept. 25, 2003, the U.S. District Court for the District of Colorado struck down the FTC’s DNC Registry rules on First Amendment grounds—holding that by exempting charitable calls from the do-not-call rules, the FTC has imposed a “contentbased limitation on what the consumer may ban from his home.” The legislation passed on Sept. 25, 2003, does not remedy the constitutional infirmities identified by the Colorado district court. Consequently, pending resolution of the FTC’s appeal of the Colorado district court decision, the FTC will not enforce compliance with the DNC Registry.¹

In addition, late last week the 10th Circuit Court of Appeals rejected a request by the telemarketing industry to stay the FCC’s new telemarketing and DNC rules during the FTC appeal process. Late yesterday, U.S. Supreme Court Justice Stephen Breyer refused the telemarketing industry’s request to block the 10th Circuit ruling, although the industry could renew its request with a different Supreme Court justice. Following the 10th Circuit’s refusal to stay the FCC’s rules, the FCC issued a news release yesterday stating that the FCC “will enforce its Do-Not-Call rules against telemarketers that have obtained the Do-Not-Call list from the FTC, beginning Wednesday [Oct. 1].” It is noteworthy that as of Sept. 28, 2003, the FTC is no longer making the DNC Registry available to telemarketers, which is why the FCC carefully stated that it would enforce the DNC rules against those telemarketers that have already obtained the list. The FCC’s DNC Registry enforcement efforts have been further complicated by yesterday’s ruling by the Colorado district court forbidding the FTC from sharing its DNC Registry with the FCC.

Despite the activity surrounding the DNC Registry and the recent uncertainty regarding its status, there are many other aspects of the FTC and FCC’s telemarketing regulations that remain intact and are unaffected by the recent court rulings. Indeed, as explained below, several of the new telemarketing restrictions took effect last month.

Pursuant to the Telephone Consumer Protection Act (“TCPA”), the Telemarketing and Consumer Fraud and Abuse Prevention Act (“TCFAP”), the Do-Not-Call Act of 2003, and other federal legislation, the FCC and Federal Trade Commission (“FTC”) share jurisdiction over telemarketing issues.² As noted above, the FCC’s Do-Not-Call proceeding supplements a similar proceeding concluded late last year by the FTC. In the FCC’s Do-Not-Call proceeding, it jointly established with the FTC the national DNC Registry, and the FCC adopted and revised rules placing additional restrictions on the telemarketing industry. While most of the new and revised telemarketing rules went into effect last month, several of the more significant provisions, such as rules regarding the use of autodialers and prerecorded messages, take effect on Oct. 1,2003.³ Unless otherwise noted, the effective date of the provisions summarized below is Aug. 25, 2003.

The key provisions of the FCC’s and FTC’s telemarketing rules are summarized below. While both agencies share jurisdiction over the creation of the DNC Registry, the types of telemarketing rules recently adopted by the FCC and FTC vary, due to the differing scopes of each agency’s regulatory authority. Consequently, with the exception of the DNC Registry, we discuss the telemarketing rules adopted by each agency in separate sections. However, we
identify below any instances where both agencies adopted conflicting rules.

THE FCC’S RULES

In addition to general provisions applicable to telemarketers and fax broadcasters, the FCC adopted several provisions specifically applicable to the telemarketing activities of common carriers, wireless carriers, and radio and television broadcasters.

Do-Not-Call Registry: In conjunction with the FTC, the FCC’s rules require the creation of a single DNC Registry, comprising residential wireline and wireless telephone subscribers who object to receiving telephone solicitations. As explained above, as originally adopted, both Revised Do-Not-Call All Client Memorandum - 9_2003.DOC agencies’ rules require the FTC to maintain the DNC Registry. Under these rules, businesses and third party telemarketing firms are prohibited from making telemarketing calls to phone numbers on the DNC Registry, absent one of several exemptions. The DNC Registry will retain phone numbers for a five-year period, and disconnected telephone numbers will be purged on a monthly basis. The federal do-not-call rules will supersede all less-restrictive state do-not-call rules; however, more-restrictive state rules will trump federal rules. States are encouraged to upload their own registries into the DNC Registry.

In order to comply with the do-not-call rules, sellers and/or telemarketers acting on their behalf need to purchase the DNC Registry on an area-code-by-area-code basis, at a proposed rate of $29/area code, with a maximum annual fee of $7,250. Access to five or fewer area codes will be granted at no cost. Telemarketers may access specific area codes for an unlimited number of times after payment of the annual fee. (However, as noted above, the FTC has suspended telemarketer’s access to the DNC Registry.) The effective date for the DNC Registry, under the FCC’s rules, is Oct. 1, 2003.

Do-Not-Call Exemptions: There are several exemptions to the national do-not-call rules. Similar to most states’ approaches, the most significant exemption is for calls placed to consumers by companies with whom they have an “established business relationship” (“EBR”). The FCC’s new rules now define EBR as a payment or transaction by a customer within the previous 18 months, or an inquiry or application within the previous 3 months, and the EBR exemption will not be limited by the product or service. Affiliated companies will fall within the EBR exemption if a consumer would reasonably expect them to be included, given the nature of the type of goods or services offered and the identity of the affiliate. A third-party telemarketer hired by a company may rely on that company’s EBR to call the company’s customers on its behalf; however, the EBR relationship will not include marketing partners, nor will it extend to manufacturers or sellers simply because a consumer has an EBR with a retailer or independent dealer selling the manufacturer’s product. Consumers can also give “prior express invitation or permission, evidenced by a signed writing. However, consumers can also still request to be placed on a company-specific do-not-call list, and if they do so, the EBR
exemption does not apply, even if the customer has consented to the use of their customer proprietary network information (“CPNI”).

Do-Not-Call Safe Harbor: The new rules provide for a safe harbor from liability for sellers and telemarketers that: 1) establish written procedures for compliance; 2) train personnel; 3) record a list of telephone numbers they may not contact; 4) update those lists at least quarterly; and 5) establish that any violations were the result of error.

Company-Specific Do-Not-Call: As mentioned above, the new rules still require the use of company-specific do-not-call lists. Under the revised rules, requests must be honored within 30 days. Company-specific requests will now be effective for only five years, rather than the previous ten-year period required by the FCC.

Autodialers and Predictive Dialers: Autodial rules will now also apply to predictive dialers, and the use of autodialers or predictive dialers is prohibited to certain types of numbers, such as emergency numbers, health care facilities and any number for which the consumer is charged for the call. The FCC also refused to pre-empt state laws governing the use of predictive dialers.The use of autodialers or other technology to dial any telephone number for the purpose of determining whether the line is a facsimile or voice line, known as “war dialing,” is also prohibited.

Call Abandonment: The rules establish strict limitations on the amount of abandoned calls placed by a telemarketer. A call will be considered “abandoned” if not transferred to a live sales agent within 2 seconds of the recipient’s completed greeting. Any technology used by telemarketers to dial telephone numbers must abandon no more than 3 percent of calls that are “answered live by a person, as measured over a 30-day period.⁴ Telemarketers must now allow the phone to ring for 15 seconds or four rings before disconnecting any unanswered call. When a call is abandoned within the 3 percent cap, the telemarketer must deliver a prerecorded message providing the caller’s name, phone number, and a statement that the call was for telemarketing purposes. No other information may be provided. The phone number provided must permit the individual called to make a do-not-call request during regular business hours. In order to take advantage of the safe harbor, telemarketers must maintain records establishing that they have met the criteria described above. The new call abandonment rules become effective on Oct. 1, 2003.

Artificial or Prerecorded Messages: The FCC continues to prohibit prerecorded or artificial voice messages, unless an exception applies (i.e., have prior express consent of called party, have an EBR, call is for emergency purposes, call is not commercial in nature). In this proceeding, the FCC clarified that calls inviting recipients to “Press 1” to receive further information, will not constitute prior express consent. In addition, prerecorded messages offering free goods or services and information about goods and services as part of an overall marketing campaign are prohibited, unless an exception applies. Finally, the FCC clarified its identification requirements for all calls containing an artificial or prerecorded message, including calls that fall within one of the exemptions, and including calls placed with or without the use of autodialers. Specifically, all prerecorded voice messages must identify the legal name of the caller (including any d/b/a, if applicable) and a phone number where the called party can call during business hours and request to be placed on the company-specific do-not-call list.

The FTC has not incorporated an EBR exemption for prerecorded calls. Under the FTC's rules, a prerecorded message that does not connect to a live representative within 2 seconds of the customer's greeting is considered an "abandoned call." Therefore, companies that are also subject to the FTC's rules should not engage in calling campaigns utilizing prerecorded calls even with consumers with whom they have an EBR.

Unsolicited Faxes: In the Report and Order in this proceeding, the FCC eliminated the EBR exemption for unsolicited facsimile advertisements sent to customers, absent express written permission. Moreover, express written permission is required to include a signature, a fax number to which faxes can be sent, and cannot be in the form of a negative option. Facsimile broadcasters (the companies actually sending the faxes) will be liable for rule violations if they have “a high degree of involvement or actual notice,” such as supplying the fax numbers used or reviewing and assessing the content of the message. Transmission to computerized fax servers will be subject to the unsolicited fax prohibition. However, since the release of the FCC’s Report and Order, numerous parties have filed requests for stay and clarification of this rule. Consequently, the FCC subsequently released an Order delaying the effective date of the rule change (i.e., elimination of the EBR exception for unsolicited faxes) until Jan. 1, 2005.

Caller ID: All sellers and telemarketers must transmit caller ID information regardless of their calling system. The definition of Caller ID has been revised to include the calling party number, or in certain circumstances, the automated number identification (“ANI”) and the name of the telemarketer. All persons or entities engaging in telemarketing are prohibited from blocking the transmission of caller ID information, and are prohibited from transmitting their caller identification information and then requesting that their carrier block it. There is no exemption from the caller ID requirement for calls placed to consumers with whom the entity has an EBR. The Caller ID rules become effective on Jan. 29, 2004.

Common Carriers: Common carriers will not be liable for violations of the rules regarding fax broadcasting if they merely provide the network. Common carriers will be required to transmit the calling party number associated with Caller ID in interstate calls. Common carriers will also be required, effective Jan. 1, 2004, or upon approval by OMB, to insert annual notices in customer bills, and a one-time notice to telephone solicitors using their services, regarding donot-call.

Wireless Carriers: As explained above, while telemarketers are prohibited from making calls using autodialers, the FCC has determined not to prohibit all live telephone solicitations to wireless phone numbers, despite the fact that the recipient is paying for the phone call. Consequently, subject to the autodialer/prerecorded message restrictions, telemarketing calls may be made to wireless phone numbers, and the various telemarketing rules (e.g., time of day restrictions, do-not-call lists) and exemptions apply. The FCC has found that there is no need, in light of recent proceedings regarding wireless local number portability and thousands-block number pooling, to adopt additional rules applicable to wireless carriers, implementing the TCPA.

Radio and Television Broadcasters: It will not be a violation of the FCC’s rules regarding the use of prerecorded and artificial messages for radio and television broadcasters to leave messages encouraging listeners or viewers to tune in to a specific channel or program at a specific time. This narrow exception is applicable only to broadcasters.

THE FTC’S RULES

The FTC’s rules are very similar and address many of the same issues as the FCC’s rules in a comparable manner. The FTC’s telemarketing rules do not address faxes and common carrier-specific regulations. Some of the FTC-specific rules are summarized below.

Call Verification Requirements: For all telemarketing transactions, the FTC’s rules require that the telemarketer elicit an affirmative and unambiguous statement from the consumer that demonstrates his or her intention to agree to be charged and identify to the customer the account  that is going to be charged.⁵ However, the FTC has imposed additional requirements when a customer orders a service in response to an interstate telemarketing call and will be using a “novel payment” method, one involving something other than a credit or debit card, where a conventional check or money order will subsequently be forwarded by customer, or where a company will be submitting its standard bill to the customer for later payment. In such instances, the seller or telemarketer must obtain either: (1) express written customer authorization; (2) express recorded oral approval; or (3) written confirmation.

The first method, express written authorization, requires obtaining written authorization from the customer, which includes the customer’s signature. The second method, express recorded oral approval, requires the seller or telemarketer to record that part of the telephone call that clearly demonstrates the customer’s authorization of payment including: the customer’s name and the number, date, and amount of anticipated debits, charges, or payments; the customer’s billing information, identified with sufficient specificity such that the customer understands what account will be used to collect payment for the goods or services that are the subject of the transaction. The third method, written confirmation, simply requires the seller or telemarketer to mail a confirmation to the customer prior to submitting the customer’s billing information for payment.⁶

Use of Preacquired Account Information and Free to Pay Conversions: Under the FTC’s rules, “preacquired account information” is implicated where a telemarketer is able to “place a charge on the customer’s account without obtaining the account number directly from the customer during the telemarketing transaction.” When preacquired account information is used in conjunction with a “free to pay” conversion—the offering of a temporary free trial period where the customer incurs charges unless he or she cancels before the trial period expires—the telemarketer must obtain from the customer the last four digits to be charged and the entire telephone conversation must be recorded.

Negative Option: In any type of negative option, continuity or advanced consent marketing plan (i.e., those marketing strategies interpreting a customer’s silence or failure to take affirmative action to reject goods or services as acceptance of an offer), a telemarketer must notify the customer of all material terms of the negative option features; that his or her account will be charged unless affirmative action is taken to avoid the charge; the date the charge will be submitted for payment; the specific steps the customer can take to avoid the charge; and the telemarketer must comply with any additional requirements applicable for negative options involving preacquired account information and free to pay conversions.

Upselling: Upselling involves “soliciting the purchase of goods or services following an initial transaction during a single telephone call.” In other words, it involves a new sales transaction after some other transaction has been completed. Telemarketers must be sure to comply with all pertinent disclosure and verification requirements applicable to telemarketing calls generally when an upsell occurs.

No EBR Exemption for Prerecorded Calls: While the FTC’s rules are generally consistent with the FCC’s, there is one significant difference. Like the FCC, the FTC incorporated an EBR exemption for the DNC Registry, but the FTC did not extend the EBR exemption to prerecorded calls. Therefore, because a prerecorded message does not connect to a live representative within two seconds of the customer’s greeting, under the FTC’s rules it is considered an “abandoned call”. While it is possible that the FTC will relent on this rule when the two agencies issue their forthcoming memorandum of understanding on regulatory coordination, until that occurs, companies subject to the FTC and FCC’s jurisdiction should comply with the stricter rule.

Please let us know if you have any questions concerning this or any related matter or would like a copy of the FCC Order.

Footnotes:

1 After a ruling issued late yesterday by the Colorado district court, the FTC is no longer allowing consumers to add their names to the DNC Registry. Some trade associations are urging members to comply with the DNC rules notwithstanding the latest court decisions.

2 Under the TCFAP, the FTC’s jurisdiction is over interstate calls only and extends to deceptive and abusive practices in telemarketing. In addition, the FTC has no jurisdiction over certain types of entities, such as common carriers, banks, credit unions, savings and loans, insurance companies and airlines. The FCC’s jurisdiction under the TCPA is broader than the FTC’s covering all “telephone solicitations”, including inter- or intra-state calls.

3 The effective dates of several provisions, including the notice requirements imposed on common carriers, the revised definition of an “established business relationship,” and revisions to the rules regarding company-specific do-not-call lists, are still to be determined, upon approval by OMB.

4 In contrast, the FTC rule simply prohibits telemarketers from abandoning calls but allows a 3% “safe harbor,” measured on a “per day per campaign” basis.

5 In addition, before a customer pays for goods or services offered, whether as a result of an inbound or outbound call, the telemarketer must disclose (1) the total costs of goods or services; (2) all material restrictions, limitations or conditions of the purchase; and (3) if the seller has a no refund or cancellation policy, the customer must be told of this policy or if the seller makes any representations about a refund or cancellation, the customer must be told of all material terms of such policy.

6 The written confirmation should include the information that is required to be provided for express recorded oral approval and a statement of how to obtain a refund if the confirmation is inaccurate. In addition, the envelope containing the written confirmation must be clearly identified as such on the outside of the envelope and be sent to the customer by first class mail prior to any submission for payment.