1 Comparison of the FTC's Telemarketing Sales Rule with

Comparison of the FTC’s Telemarketing Sales Rule with the FCC’s Rule Implementing the Telephone Consumer Protection Act of 1991 James T. McIntyre Chrys D. Lemon McIntyre Law Firm, PLLC (202) 659-3900 July 29, 2003 Both the Federal Trade Commission (“FTC”) and the Federal Communications Commission (“FCC”) recently issued rules governing telemarketing, including implementation of a national “do not call” list to limit telephone solicitations of individuals who have registered their telephone numbers on the list. The FTC will begin enforcing the national do not call list against businesses over which it has jurisdiction beginning October 1, 2003. Also on that date, the FCC will begin enforcing the do not call list against entities over which it has jurisdiction. A memorandum of understanding between the two agencies will be prepared to establish procedures to prevent duplicative enforcement. The purpose of this document is to provide a general comparison of some of the major provisions of the FTC’s rule and the FCC’s rule. It is not intended to be a legal opinion and should not be relied upon as such. Effective dates (based on Federal Register notices): Effective dates relevant to both the FTC’s rule and the FCC’s rule: National do not call requirements: October 1, 2003 Abandoned call requirements: October 1, 2003 Caller identification requirements: January 29, 2004 All other requirements under the FCC’s rule, including the prohibition on faxing unsolicited advertisements, are effective August 25, 2003. All other requirements under the FTC’s rule are already effective. Between the two regulatory regimes, most providers of products and services that solicit over the telephone, as well as telemarketers working on their behalf, will have to comply with the telephone solicitation requirements. The attached chart compares several provisions of both agencies’ rules. It highlights certain requirements of the respective rules and identifies differences between them. Where there are inconsistencies between the rules, the agencies are expected to attempt to reconcile those differences administratively. To that end, the agencies are expected to issue a memorandum of understanding to address at least some of these inconsistencies. The following are a couple significant issues that remain unresolved at this time: 1 • Jurisdiction over the “business of insurance” – Generally speaking, the McCarranFerguson Act leaves to the states the authority to regulate the “business of insurance,” which raises the issue of whether the FTC and the FCC have the authority to enforce their rules against the marketing of insurance products. That issue has yet to be resolved. The FTC is involved in litigation on the issue. The FCC has said only that it does not intend to generally exempt the insurance industry from its rule. The “established business relationship” exception to the do not call provisions in joint marketing arrangements – Both rules permit a seller (or a telemarketer) to call a telephone number listed on the national do not call list if the seller has an established business relationship with the individual whose number is listed (assuming the individual has not previously asked to have the number listed on the company’s own do not call list). In a joint marketing arrangement, a business enters into a joint marketing agreement with another business to jointly market products or services. If one of the joint marketing partners, such as a bank, has an established business relationship with the customer, but the other partner does not, it is not clear whether the joint marketing partner may rely upon its partner’s established business relationship to make the call. The agencies appear to differ on this issue. Staff at the FTC has indicated that the joint marketing partner may rely upon its partner’s relationship with the individual, but the FCC’s order seems to take a different view.1 Explicit in the FTC’s definition of “established business relationship” – and implicit in the FCC’s definition of that term – is a focus on the relationship between the seller and the individual being called. In the joint marketing context, there are actually two “sellers” involved, especially when the sellers are financial institutions. Indeed, the term “joint agreement” in the Gramm-Leach-Bliley Act is defined as an agreement between two financial institutions to “jointly offer, endorse, or sponsor a financial product or service.” (emphasis added) Consequently, an established business relationship with either seller should satisfy the established business relationship exception for the whole joint marketing arrangement. However, given the FCC’s single statement on this issue (quoted in footnote 1), additional guidance from one or both agencies may be warranted. • The order issuing the FCC rule states: “We also disagree with WorldCom that the [established business relationship] exception should extend to marketing partners for purposes of telemarketing joint offers, to the extent the ‘partner’ companies have no [established business relationship] with the consumer.” This statement contains no analysis and does not appear to recognize the nuances involved when products and services are jointly marketed. 1 2 Primary issues addressed in the rule - Federal Trade Commission Rule National do not call registry Abandoned calls Prevention of unauthorized billing Use of preacquired account information Transfers of unencrypted consumer account numbers Applies to sellers and telemarketers who sell goods or services through interstate calls No jurisdiction over intrastate calls, common carriers, banks, airlines, nonprofits or the “business of insurance” Enforceable Oct. 1, 2003 Federal Communications Commission Rule - National do not call registry - Abandoned calls - Prohibition on all faxes that contain unsolicited advertisements - Pre-recorded messages - Prohibition on all calls to wireless numbers made with automatic dialing equipment Applies to all calls that involve a telephone solicitation, both intrastate and interstate No jurisdiction over business-to-business calls, nonprofits, or the “business of insurance” Enforceable Oct. 1, 2003 Piggybacks on FTC’s do not call list Intrastate calls: FCC rule is the minimum standard; states can have more restrictive requirements. Interstate calls: More restrictive state laws are preempted. Jurisdiction - Do not call (requirements) Do not call (preemption) - - - No state law preemption Do not call (safe harbor) Safe harbor: Not liable for violating do not call rules if seller/telemarketer: Has established and implemented written procedures to comply with the requirements; Has trained its personnel, and any entity assisting it in compliance, in the procedures; Maintains a list of telephone numbers that cannot be called; and Updates the list every 3 months and monitors compliance with the procedures and maintains records documenting this process so that any improper call is the result of error. Good for 18 months from any purchase or transaction and 3 months from any inquiry or application (unless telephone number is on a company-specific do not call list). An affiliate of a company falls within the EBR exception only if the consumer would reasonably expect to be called given the nature and type of goods or services offered and the identity of the affiliate. (Same as FTC) - The FCC’s rule provides that to be protected by the safe harbor, a seller must buy the national do not call list and may not rely on its telemarketer’s purchase of the list. (47 C.F.R. § 64.1200(c)(2)(i)(E)) Do not call (Established business relationship exception) - (same as FTC) - 3 Do not call (Joint marketing arrangements) - Federal Trade Commission Rule One staff member has said that a business’s established business relationship with an individual extends to the business’s joint marketing partner. Federal Communications Commission Rule - FCC’s order states: “We disagree . . . that the [established business relationship] should extend to marketing partners for purposes of telemarketing joint offers, to the extent the ‘partner’ companies have no [established business relationship] with the consumer.” (Para. 118). - Effective October 1, 2003 (same as FTC rule, except:) Abandoned calls/predictive dialers - Call is considered abandoned if no sales rep is available within 2 seconds after the consumer answers. Safe harbor: - Technology is employed to ensure that no more than 3 percent of calls that are answered by a person are abandoned, measured per day per calling campaign; - Telephone must be permitted to ring for at least 15 seconds or 4 rings before disconnecting; - Each call must be connected to a sales rep with 2 seconds, and if none is available, must leave recorded message saying name and phone number of seller (no sales pitch); and - Maintain appropriate records. Unsolicited faxes Not addressed - The 3 percent limit on abandoned calls is measured over a 30-day period. If a call is not connected to a sales rep within 2 seconds, the recorded message must also say that the call was made “for telemarketing purposes.” - Effective August 25, 2003. May not fax an unsolicited advertisement from any sender to any recipient without first obtaining affirmative signed consent (no established business relationship exception). 4