Topic 10

Topic 10

Telemarketing Sales Rule and Telephone Consumer Protection Act

Just having a customer’s phone number or email address doesn’t give you a green light to market to them without their further consent. Careful planning is necessary to implement a telemarketing campaign that complies with regulations.

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Compliance Tips Recommended Practices

Did you know?

You could risk a penalty of $42,530 for calling a customer who asked not to be called, so be sure to maintain your dealership’s “do not call” list.

Compliance Tip

Scrub telemarketing lists against both the FTC’s National Do Not Call Registry and applicable state do-not-call lists.

Recommended Practice

If you conduct direct marketing, don’t forget to periodically remove people who have opted out or unsubscribed.

At the federal level, telemarketing is regulated by two sources: (i) the Telephone Consumer Protection Act (TCPA), which is enforced by the Federal Communications Commission (FCC); and (ii) the Telemarketing Sales Rule (TSR), which is enforced by the FTC and in some instances the CFPB (which treats violations of the TSR as an unfair, deceptive, or abusive act or practice). While both the TCPA and the TSR continue to generate increasing numbers of lawsuits and litigation each year, the TCPA has been used in many notable class actions garnering multimillion-dollar settlement (for example, AT&T Mobility, Caribbean Cruise Line, Capital One, US Coachways and Dish Network, all paid over $300 million in settlements between 2014 and 2017). This regulatory regime is especially complicated because in some cases the two standards are similar; in other cases, the two standards cover the same subject with different requirements and prohibitions; and in still other cases, one standard may address an issue on which the other is silent. This structure requires careful planning and consultation with legal and marketing teams to implement a telemarketing campaign that complies with all applicable standards, particularly TCPA and TSR.

Telemarketing Sales Rule

The Telemarketing and Consumer Fraud and Abuse Prevention Act (Telemarketing Act) directed the FTC to issue a rule prohibiting deceptive and abusive telemarketing conduct. In response, the FTC established the TSR. The TSR regulates “telemarketing” which is defined as “a plan, program, or campaign . . . conducted to induce purchases of goods or services. . . by use of one or more telephones and involves more than one interstate telephone call.” It applies to all businesses or individuals that engage in “telemarketing,” including “telemarketers” when they initiate or receive calls to or from consumers; and “sellers” when they provide, offer to provide or arrange to provide goods or services to consumers in exchange for payment. Even if an entity or individual does not meet the definition of a “seller” or “telemarketer” in this context, the TSR may still apply if they provide substantial support to sellers or telemarketers. Calls made from outside of the United States must also comply with the TSR.

The FTC maintains the national “Do-Not-Call” list prohibiting telemarketing calls to the listed numbers, which include both land lines and cell numbers, subject to exceptions for calls based on a business relationship or express permission. (The FCC also enforces compliance with the national list.) Because several states maintain their own “do-not-call” lists independent of the national list, dealers must scrub telemarketing lists against both the FTC’s National Do Not Call Registry and applicable state do-not-call lists. Additionally, dealers are required to keep their own internal company-specific list of customers who indicate that they do not want to be contacted by telephone and their contact information must be deleted from marketing lists as well. If you share customer information with affiliates or third parties, make sure to scrub from the shared lists any customers who have opted out of being contacted in any medium of expression. The TSR expressly prohibits callers from interfering with consumers’ efforts to exercise their company-specific do-not-call rights and lists specific proscribed activities, including hanging up on the consumer and requiring the consumer to listen to a sales pitch before processing the do-not-call request. The penalty for calling a consumer who asked not to be called potentially exposes a seller and telemarketer to a civil penalty of $42,530 for each violation.

Beyond do-not-call provisions, the TSR, among other things, requires a certain “prompt” disclosure of material information at the outset of each sales call or sales pitch and certain other disclosures of important information before the consumer agrees to purchase any goods or services in a telemarketing transaction. The prompt disclosures include the seller’s identity and the call’s sales purpose. These disclosures must be “clear and conspicuous” in a way that a consumer will notice and understand.

The TSR specifies several categories of material information that must be provided to consumers:

Cost and Quantity. The total cost to buy, receive, or use the offered goods or services. If disclosing the installment payments and the amount of each payment satisfies the requirement, then the amount and number of the payments must correlate to a billing schedule T Note also that if the offer is for a consumer credit product, the TSR provides that TILA and Regulation Z disclosure requirements may apply.
Material Restrictions, Limitations or Conditions. Material information is information that would likely affect the consumer’s choice of goods, services or charitable contribution.
No Refund Policy. If applicable, a no-refund policy and/or “all sales are final” policy must be disclosed clearly and conspicuously as well as all terms and conditions likely to affect a consumer’s decision whether to buy the goods or services offered.
Prize Promotions. Includes any sweepstakes or game of chance and a representation that the consumer has won, selected to receive or may be eligible to receive a prize or purported prize.
Full details of any “negative option plan” which is an offer or agreement to o sell or provide any goods or services on an ongoing basis where, following a consumer’s initial enrollment in a program the seller interprets the consumer’s silence or failure to affirmatively reject or cancel the agreement as acceptance of receiving future goods or services.

Other disclosures concerning sales of credit card loss protection and debt relief services are also required to be disclosed although they likely do not apply to a dealer’s model.

Any misrepresentations regarding this information are prohibited.

The TSR requires sellers to obtain a consumer’s “express verifiable authorization” confirming a telemarketing transaction, which means giving the consumer several prescribed items of information to complete and confirm the transaction. It is required where a payment is made by a method other than a credit card.

The TSR separately requires sellers to obtain the consumer’s “express informed consent” to a telemarketing transaction. The specific requirements of this “informed consent” standard differ depending on the details of the relationship between the seller and the consumer and the nature of the offer. However, consent would not meet the requirement if the consumer does receive the required material disclosures. The TSR’s list of prohibited abusive practices includes repeated calling with an intent to harass or annoy, calling before 8:00 a.m. or after 9:00 p.m., and restrictions on abandoned calls and prerecorded message telemarketing.

The TSR generally prohibits a high percentage of abandoned calls but establishes a limited safe harbor if the telemarketer:

Uses technology that ensures abandonment of no more than three percent of all calls answered by a live person, measured over the duration of a single calling campaign, if less than 30 days, or separately over each successive 30-day period or portion thereof that the campaign continues.
Allows the telephone to ring for 15 seconds or four rings before disconnecting an unanswered call.
Plays a recorded message stating the name and telephone number of the seller on whose behalf the call was placed whenever a live sales representative is unavailable within two seconds of a live person answering the call.
Maintains records documenting adherence to the three requirements above.

A telemarketing call is abandoned if a live consumer answers the call and no live sales agent is available to speak to the consumer within two seconds. Predictive dialers can produce abandoned calls when the dialer calls more consumers than there are available sales agents. To take advantage of the safe harbor, callers may use a predictive dialer provided that it does not abandon more than three percent of all calls answered by a live consumer. For the permitted three percent of calls that can be abandoned, the caller must provide a recorded message identifying the caller by name and telephone number. As explained below, the FCC’s TCPA rule also regulates abandoned calls but establishes a stricter set of requirements for its safe harbor.

The TSR requires the called consumer’s express written agreement to deliver prerecorded telemarketing messages. This agreement must be in writing, must be signed by the consumer, must include the consumer’s telephone number, must identify the seller receiving the consent, and must explain what the consumer is agreeing to. The seller must also meet the following three requirements:

Before the consumer agrees, the seller must clearly and conspicuously disclose the consequences of agreeing — namely, that the agreement will result in the seller delivering prerecorded messages to the consumer via telemarketing calls;
Sellers are prohibited from requiring a consumer to provide this agreement as a condition of any purchase. In other words, consumers must be able to do business with the seller without providing this agreement to receive prerecorded telemarketing messages.
Sellers must give the consumer an opportunity to designate the telephone number to which the calls may be placed.

As with respect to the call abandonment provision, the FCC’s TCPA rule also regulates in this area with standards that are stricter than the TSR’s. The FCC’s approach is set out below.

Even when the seller has the consumer’s consent, all prerecorded telemarketing calls must include an automated interactive opt-out mechanism that allows the consumer to make a company-specific do-not-call request. This mechanism must be presented to the consumer within two seconds at the start of the call and must begin with the “prompt” disclosures required by the TSR. This opt-out mechanism must be available throughout the call and must disconnect from the consumer’s line immediately after the consumer uses the mechanism to opt out. For prerecorded telemarketing calls delivered to a consumer’s voicemail, where the opt-out mechanism would not be operational, the message must provide a toll-free number that connects to an automated opt-out mechanism.

Note that the TSR offers a partial exemption for telemarketing calls that require a face-to-face sales presentation before the transaction is completed. Some but not all TSR provisions apply to these calls.

Telephone Consumer Protection Act

As noted above, the FCC also regulates telemarketing and servicing calls and text messages using auto-dialers and pre-recorded messages to cell phones under the TCPA.

A key issue under the TCPA is what constitutes an “auto dialer”. Generally, “auto dialers” are any device that “have the capacity” to store numbers to be called and to dial such numbers. Even if the machine is being used to make calls manually, if the device has the capability of auto dialing, it will be considered an auto dialer and the call treated as if it were made by an auto dialer. When asked for an example of a device that is not an auto dialer, the FCC responded that a rotary dial phone is not an auto dialer. Over time, the FCC has consistently expanded its interpretation of what constitutes a regulated auto dialer. In July 2015, the FCC adopted the position that the TCPA’s auto dialer standard can even judge equipment based on its “potential functionalities” — equipment that is not currently configured to auto dial could still be regulated as an auto dialer if it could be configured in the future to have the capacity. In March 2018, a federal appellate court set aside much of the FCC’s guidance interpreting the auto dialer standard. In response to this decision, many courts are returning to the original statutory standard to assess whether a dialing system is subject to the FCC’s consent standards. The FCC is also conducting a rulemaking to revisit this issue. Given the current uncertainty regarding the “auto dialer” standard, dealers should proceed with extreme caution when applying the FCC’s standard to their dialing equipment. Under the TCPA, a “call” includes text messages.

An often-litigated issue is whether a “predictive dialer” could be considered an “auto dialer”. Plaintiffs tend to rely on FCC orders saying that predictive dialers are auto dialers. In two recent decisions, New York district courts have upheld the FCC’s position that predictive dialers can be considered auto dialers. But other district courts in Illinois, North Carolina and Texas have taken the opposite position that FCC orders are not binding.

However, the weight of FCC orders in federal district court proceedings was recently called into question. The Supreme Court recently decided the extent to which a 2006 Federal Communications Commission order interpreting the term “unsolicited advertisement” binds lower court. The Court determined that it may depend on the resolution of two preliminary questions that an appellate court should address in the first instance: (1) whether the order is the equivalent of a legislative rule, which has the force and effect of law, or an interpretative rule, which does not; and (2) the entity in question had a “prior” and “adequate” opportunity to seek judicial review of the order.

As to the definition of predictive dialers, courts are split on the issue and we anticipate further litigation on the issue. In the meantime, we recommend that dealers consult with their local attorney to confirm whether they are using a predictive dialer or auto dialer.

The TCPA requires businesses to obtain “prior express consent” in order servicing (i.e., non-marketing calls to cell phones using an auto dialer or a prerecorded message (collectively automated calls and/or messages). Such automated servicing calls could, for example, relate to the status of an account, the status of a loan application, late payments, or other calls relating to the maintenance or servicing of the account. Prior express consent need not be “written” as required when telemarketing calls or texts (as discussed below). It can be oral (although a company should retain a record of any oral consents, while stay abreast of call-recording laws). Prior express consent can also be implied when a customer voluntarily provides their cell phone number to a business in connection with a business transaction, although a minority of jurisdictions have challenged a customer’s alleged implied or presumed consent by merely giving out their cell phone number to an organization in some contexts. Notably, prior consent is not required when making calls using autodialers or pre-recorded messages to landlines.

Given the potential TCPA liability at stake, conflicts among courts on the issue of implied consent, and the frequent difficulty to determine what is a cell phone number and what is a residential landline, it is are recommended best practice for a dealer to obtain prior consent to use autodialers to send servicing calls or texts to customers.

We may see additional guidance on the scope of TCPA liability in 2021. On December 8, 2020, the U.S. Supreme Court heard oral argument in Facebook, Inc. v. Duguid. The Court is tasked with deciding whether the TCPA’s definition of an “automatic telephone dialing system” includes a device that can “store and automatically dial telephone numbers,” despite whether a device does or does not “use a random or sequential number generator.” Many businesses looking to legitimately communicate to their customers at scale without subjecting themselves to uncapped TCPA liability will be following this case for additional clarity on TCPA’s scope.

The FTC also addresses telemarketing calls made to a cell phone or a landline. Some of these standards mirror the TSR’s, and others do not. The FCC’s standards for complying with the national do-not-call list for telemarketing calls are similar to the TSR’s. The FCC, like the TSR, establishes company-specific do-not-call rights for consumers, but the standards are different. Most significantly, the FCC’s approach requires callers to have a written do-not-call compliance policy that is available upon request to anyone who asks to see it.

Other than do-not-call provisions, the second key element of the FCC’s telemarketing standards regulates the use of auto dialers and prerecorded messages. This is primarily a consent standard. Callers must have “prior express written consent” to use an auto dialer or a prerecorded message to place a telemarketing call to a cell phone, and it must obtain “prior express consent” to use auto dialers or prerecorded messages to place a telemarketing call to a residential landline. The “prior express written consent” required by the FCC’s TCPA rule must be a written agreement signed by the consumer. It should include the consumer’s telephone number, identify the seller receiving the consent, and be sufficient to show that the consumer received “clear and conspicuous” notice of what the consumer is agreeing to. What makes the FCC’s approach for TCPA stricter than the FTC’s for TSR is that the consent must also be sufficient to show that the consumer received clear and conspicuous notice of the fact that the seller cannot condition a purchase on the consumer providing this consent. The TSR also prohibits conditioning a purchase on this consent, but the TSR does not require the agreement to say so. Customers can withdraw their consent “through any reasonable means” including orally, at any time.

The FCC has taken the position that a text message is a telephone call to a cell phone subject to the same consent requirements as auto dialed calls and prerecorded messages. As a result, any marketing text message sent using technology that satisfies the TCPA’s auto dialer definition requires “prior express written consent.”

The FCC’s TCPA rule also imposes disclosure requirements that are specific to prerecorded messages. Prerecorded telemarketing messages must identify the seller at the outset of the message and provide the seller’s telephone number during the message. Consumers must be able to use the telephone number provided to make a company-specific do-not-call request. These messages, even with valid consent, must include an automated mechanism for making a company-specific do-not-call request. Messages left on voicemail must provide a toll-free number that connects to this type of automated opt-out mechanism. The mechanism must immediately disconnect from the consumer’s line after the consumer uses it.

Like the TSR, the FCC’s TCPA rule prohibits abandoned telemarketing calls but establishes a safe harbor allowing for restricted use of a predictive dialer. Notably, unlike the TSR, the FCC’s safe harbor requires the brief message identifying the caller by name and telephone number to also include an automated mechanism for making a company-specific do-not-call request. The TCPA, like the TSR, prohibits telemarketing calls before 8:00 a.m. or after 9:00 p.m. and requires transmission of caller ID information in every telemarketing call. The Telemarketing Sales Rule can be enforced by the FTC and State Attorneys General.

The TCPA provides for unlimited strict liability of $500 – $1,500 per call or text message made without obtaining proper advance written consent. There is a similar penalty structure for the TCPA’s do-not-call provisions, but the penalty figure is an “up to” amount that courts can adjust, rather than a fixed amount. Numerous class actions have been filed under the TCPA in large part because of the absence of any cap on class action damages. As a practical matter, the ability to enforce extends to the called party. The “called party” means the current phone subscriber or the customary user of the cell phone. As a result, you can be held strictly liable for a call to a wrong number, regardless of whether the original subscriber had previously provided his or her consent. The FCC had established a one-call safe harbor for unintended calls to reassigned numbers, but the same March 2018 federal appellate court decision that vacated the FCC’s “auto dialer” guidance also set aside the FCC’s handling of TCPA liability for improper calls to reassigned numbers. At this time, such liability has been suspended, pending new FCC guidance. The TCPA can also be enforced administratively by federal agencies.

Federal agencies have also brought cases alleging unfair, deceptive, or abusive acts or practices in the context of a telemarketing campaign. Among other things, when telemarketing products, a dealer must state promptly the purpose of the call; clearly disclose, prior to purchase, the cost of the product; disclose prior to purchase all material conditions, benefits, and restrictions relating to the product; disclose clearly that the purchase of the product is voluntary and not required; make all legally required disclosures in a clear manner and at reasonable speed and cadence so the consumer can understand them; and after disclosures are read, require the customer to acknowledge the purchase is voluntary and that the customer affirmatively requests or consents to purchase the product. If the product has a cancellation or refund policy, the dealer must disclose the policy and give the phone number to cancel and the time in which to get a refund. The customer’s purchase and means of payment must also be disclosed and confirmed. If paying by credit card, the customer must give the full credit card number for payment to the sales representative.

States also have laws regulating telemarketing. In addition to the existence of several state-specific do-not-call lists, some states give consumers three-day cancellation rights for telemarketing sales and a number of states have tougher telemarketing sales rules than the FTC and FCC (examples include Texas, New Jersey, Arizona, Louisiana, and Wyoming). Since the rules are very complicated, you should get advice from your counsel on your specific practices.

Email

The federal CAN-SPAM Act of 2003 requires that each commercial email conspicuously give the consumer a way to opt out of receiving further commercial messages. Senders must honor opt-out requests within 10 business days. Commercial emails also must contain the sender’s address, a notification that the message is an advertisement, and other specific language. CAN-SPAM prohibits misleading subject lines and “from” line information. The prohibition on misleading “from” lines also applies to “transactional or relationship” messages: emails that relate to an existing business relationship between the sender and recipient and that do not market products or services, such as messages informing a customer of a warranty or recall notice. Your counsel can advise you about state email laws and the interplay between federal and state email standards.

Fax

The Telephone Consumer Protection Act, as amended by the Junk Fax Prevention Act of 2005, restricts the ability to send fax advertisements. Unsolicited fax advertisements are prohibited unless they are based on an established business relationship between the parties. (In addition, fax advertisements that are based on the recipient’s prior express invitation or permission are not “unsolicited” and are therefore permitted.) Permitted fax advertisements are subject to regulation by the TCPA. The general rules are that the first page of the fax advertisement must include a clear and conspicuous notice providing instructions for opting out of future advertising faxes from the sender. This notice must explain the recipient’s opt-out rights and note that a sender’s failure to honor an opt-out request within 30 days is unlawful. This notice must also include a telephone number and fax number for submitting an opt-out request. If neither of these options is toll-free, the notice must also provide a cost-free opt-out mechanism available via a website or email address. The sender’s opt-out mechanism must be available to receive opt-out requests 24 hours a day, 7 days a week. Opt-out requests must be submitted a particular way to be valid, and the required opt-out notice must include instructions for submitting a valid request. Specifically, the notice must explain that the request must include the recipient’s fax number, and the request must be submitted using the means made available by the sender. The FCC has said that even fax advertisements that are based on the recipient’s express permission must include this opt-out notice, but a federal appellate court has challenged this position as regulatory overreach that is not supported by the statute. Senders must honor opt-out requests in the shortest reasonable time, not to exceed 30 days.

Under a separate standard administered by the FCC, all fax communications must contain, at the top or bottom margin on the first page, the date and time of transmission and, on every page, the sender’s identity.

Recommended Practices

If you conduct direct marketing, periodically scrub your target lists for persons who have excluded themselves from the means of communication you intend to use (telemarketing, faxes, and email). You should keep a separate list of consumers who opt out of telemarketing, faxes, and email and be careful before using an auto dialer or prerecorded message to obtain the appropriate consents from the party you are calling or texting. This consent must include specific disclosures and comply with specific content requirements. Adequately scrub telemarketing lists of phone numbers against the FTC’s National Do Not Call Registry, your state’s Do-Not-Call list and your dealership’s list of persons who have asked not to be called. The Data & Marketing Association (www.the-dma.org) also maintains “do not contact” lists that you should scrub your lists against. If you are telemarketing, get assurances from vendors on having obtained customer consents and exclusions of persons listed on federal and state Do-Not-Call lists, then double-check against Do-Not-Call lists, as well as your own dealership’s list of customers who have asked not to be called. The class action liability potential under the TCPA makes this a critical area for you to be compliant. Also, note that many State Attorneys General and Motor Vehicle Departments have their own rules or guidelines for advertising motor vehicles.
Maintain an internal “do-not-call” list independent of the FTC’s National Do Not Call Registry and any applicable state do-not-call lists. You must regularly scrub your internal target lists, against the federal and any applicable state do-not-call lists, of consumers who have opted out of communications from you and/or your affiliates (i.e. telemarketing, texts, faxes, e-mails) and update these opt-out lists at least every 30 days for landlines and every 15 days for wireless cell numbers. Out of an abundance of caution, we recommend that you scrub your internal target lists every 14 days. Note that state laws may have more restrictive requirements and we recommend that you consult with your local attorney.
As discussed in Topic 10, you should obtain a customer’s prior express written consent before delivering telemarketing calls with an automatic dialer including prerecorded messages. If you want to take a more prudent approach, you could adopt a policy and implement a practice whereby you obtain a consumer’s express written consent before making any telemarketing calls regardless of whether the calls are made with an automatic dialer and/or include a prerecorded message. Indeed, this prior consent approach is required in a Number countries outside the U.S. For example, see Canada’s Anti-Spam Law (“CASL”).
Vet all third-party telemarketing vendors. If you decide to hire a third-party to make telemarketing calls, it is recommended that you conduct due diligence on the third-party’s policies and procedures, litigation history (e.g. was the third-party named in any relevant litigation) and any public complaints lodged against the third-party, among other things. Also, as with the use of any third party, ensure that any personal information shared with them will not be used for purposes outside the scope of the agreement to avoid the transfer of data constituting a “sale.”