Telemarketing

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The FTC filed a lawsuit earlier this month in the U.S. District Court for the District of Utah charging telemarketers with violating the FTC Act and the Telemarketing Sales Rule.  The FTC alleges that defendants deceptively claimed their “business coaching” would help consumers earn thousands of dollars a month by starting a home-based Internet business.

According to the complaint, the defendants’ telemarketing operation relied on “leads” supplied by other companies.  Typically, these were consumers who had purchased some work-from-home-related product or service online for less than $100. For a fee or a percentage of defendants’ sales, the company that sold the product or service would encourage the buyer to contact an “expert consultant” or “specialist” to see if they qualify for an “advanced” coaching program.  However, when the consumer called to speak to a “specialist” they were merely routed to defendants’ telemarketers.

According to the lawsuit, the defendants then charged consumers up to $13,995 for their purported business coaching program, which merely provided information that was already freely available on the Internet.  Ultimately, most people who bought the service did not develop a functioning business, earned little or no money, and ended up deeply in debt.

Only a few days ago, my colleague Elizabeth Patton posted about the Federal Trade Commission’s release of its annual Data Book outlining the most recent statistical data about uses of the National Do Not Call Registry, a national database maintained by the FTC listing the telephone numbers of individuals and families who have requested that telemarketers not contact them.

Today, the FTC followed that up by issuing its biennial report to Congress on the Registry. The FTC reports that many businesses and organizations have attempted to exploit exceptions to the Telemarketing Sales Rule (TSR), and that these organizations have occasionally faced stiff civil penalties as a result. As such, companies engaged in telemarketing tactics should take the time to understand the TSR and its exceptions and make sure their practices are in compliance.

Among other things, the TSR makes it illegal for a business or individual taking part in “telemarketing” — defined as “a plan, program, or campaign . . . to induce the purchase of goods or services or a charitable contribution” involving more than one interstate telephone call — to call any phone number listed in the Registry. There is an exception, however, for calls to consumers with whom the company has an “established business relationship.” This exception allows sellers and their telemarketers to call customers who have recently made purchases or made payments, and to return calls to prospective customers who have made inquiries, even if their telephone numbers are on the Registry.

To fall within the “established business relationship” exception, the call must be to a person with whom the seller has an existing relationship based on: (1) the consumer’s purchase, rental, or lease of the seller’s goods or services or a financial transaction between the consumer and seller, within the eighteen months immediately preceding the date of a telemarketing call; or (2) the consumer’s inquiry or application regarding a product or service offered by the seller, within the three months immediately preceding the date of a telemarketing call.

According to the FTC, businesses routinely abuse this exception by engaging in calls in which the seller identified in the telemarketing call and the seller with whom the consumer has a relationship are technically part of the same legal entity, but are perceived by consumers to be different because they use different names or market different products.

Whether calls by or on behalf of sellers who are affiliates or subsidiaries of an entity with which a consumer has an established business relationship fall within the exception depends on consumer expectations. In other words, the question is whether the consumer likely be surprised by the call and find it inconsistent with having placed their phone number on the Registry. The greater the similarity between the seller and the subsidiary or affiliate in the eyes of the consumer, the more likely it is that the call will fall within the established business relationship exception.

Another issue arises when businesses place telemarketing calls to consumers after acquiring the consumers’ telephone numbers from others — so-called “lead generators” — without screening the numbers to remove those listed on the Registry. Such calls generally do not fall within the established business relationship exception because, while consumers may have a relationship with the lead generator, they do not have an established business relationship with the seller who has purchased the leads. Thus, a single sales pitch can produce multiple illegal calls, generating one or more calls from both the lead generators and the telemarketer.

The report also clarifies that the submission of a sweepstakes entry form does not create an “established business relationship” between the consumer and the company administering the sweepstakes, and notes several enforcement actions that have been brought against companies for making illegal calls that relied upon sweepstake entry forms as a basis for making telemarketing calls.

Recent actions by the FTC indicate that businesses and other organizations that use or rely on telemarketing tactics would be well-advised to review their telemarketing practices and ensure they are in compliance with the TSR and related federal regulations.