CLIENT MEMORANDUM. Federal Trade Commission s Rule for Prerecorded Message Telemarketing Calls

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1 CLIENT MEMORANDUM From: West Corporation Re: New Federal Trade Commission Rule for Prerecorded Message Telemarketing Calls Existing Federal Communication Commission Rule for Prerecorded Message Calls to Cell Phones Date: September 19, 2008 Federal Trade Commission s Rule for Prerecorded Message Telemarketing Calls In 1994, Congress passed the Telemarketing and Consumer Fraud and Abuse Prevention Act ( Act ). 1 The purpose of the Act was to fight telemarketing fraud and to provide consumers with new protections. The Act directed the Federal Trade Commission ( FTC ) to issue a rule prohibiting deceptive and abusive telemarketing acts or practices. As a result, the FTC adopted the original Telemarketing Sales Rule ( Rule ) in The FTC issued major revisions to the Rule on December 18, Included in the December 18, 2002 revisions was a prohibition against abandoning outbound telephone calls. A telephone call is abandoned if a person answers it and the telemarketer does not connect the call to a sales representative within two seconds of the person s completed greeting. 3 The effect of this provision was to prohibit all prerecorded message telemarketing calls. In November 2004, the FTC issued its first rule proposal regarding prerecorded message calls. This proposal would have allowed prerecorded message telemarketing calls to consumers with whom a seller had an established business relationship. 4 In October 2006, the FTC, in response to an overwhelming number of comments opposing the 2004 proposal, issued a new proposed rule that would allow prerecorded message telemarketing calls only to consumers who had given their prior express written consent to receive such calls. 5 On August 19, 2008, the FTC issued its final rule regarding prerecorded message telemarketing calls. 6 The final rule amendments were published in the Federal Register ( FR ) on August 29, Below is a description of the amendments to the Rule. West Corporation s affiliates and their clients will each be affected differently. The information below focuses only on calls for the sale of goods and services, and charitable solicitations. THE INFORMATION BELOW IS NOT INTENDED TO BE LEGAL ADVICE. YOU SHOULD CONSULT YOUR OWN LEGAL COUNSEL. Your legal counsel should feel free to contact our Corporate Legal Department to discuss the relevant issues. 1

2 Definitions Outbound telephone call A telephone call initiated by a telemarketer to induce the purchase of goods or services or to solicit a charitable contribution. 8 Seller Any person who, in connection with a telemarketing transaction, provides, offers to provide, or arranges for others to provide goods or services to the customer in exchange for consideration. 9 Telemarketer Any person who, in connection with telemarketing, initiates or receives telephone calls to or from a customer or donor. 10 Telemarketing A plan, program, or campaign which is conducted to induce the purchase of goods or services or a charitable contribution, by use of one or more telephones and which involves more than one interstate telephone call. 11 Section Abusive telemarketing acts or practices. Prerecorded message telemarketing calls cannot be sent without prior written, signed consent from the consumer. Rule: Section 310.4(b)(1)(v)(A) It is an abusive telemarketing act or practice and a violation of this Rule for a telemarketer to engage in, or for a seller to cause a telemarketer to initiate any outbound telephone call that delivers a prerecorded message unless in any such call to induce the purchase of any good or service, the seller has obtained from the recipient of the call an express agreement, in writing, that: (i) the seller obtained only after a clear and conspicuous disclosure that the purpose of the agreement is to authorize the seller to place prerecorded calls to such person; (ii) the seller obtained without requiring, directly or indirectly, that the agreement be executed as a condition of purchasing any good or service; (iii) evidences the willingness of the recipient of the call to receive calls that deliver prerecorded messages by or on behalf of a specific seller; and (iv) includes such person s telephone number and signature. The term signature includes an electronic or digital form of signature, to the extent that such form of signature is recognized as a valid signature under applicable federal law or state contract law ( E- SIGN ). 12 The FTC stated any agreement obtained pursuant to E-SIGN must be sufficient to show the consumer: (1) received clear and conspicuous disclosure of the consequences of providing the requested consent i.e., that the consumer will receive future calls that deliver prerecorded messages and (2) having received this information, agrees unambiguously to receive such calls at a telephone number the consumer designates. 13 The seller bears the burden of proof to demonstrate a clear and conspicuous disclosure has been provided and unambiguous consent obtained. Disclosures hidden in lengthy end user license agreements or on the back of printed forms will not be sufficient according to the FTC. 14 Point-of-sale agreements can be obtained electronically on POS devices or on paper. The consumer must have a clear choice to receive, or not to receive, prerecorded message calls. In this area the FTC provided guidance by noting, Both Yes and No check boxes would serve the purpose when placed below a straightforward statement such as: I would like to receive telephone calls with prerecorded messages from ABC Co. that provide special sales offers such as at this telephone number:. 15 The FTC indicated it would not mandate specific language to be used, but noted there might be some efficiencies from doing so. 2

3 The FTC included a provision to prohibit a seller from conditioning a consumer s purchase on the agreement by the consumer to receive future prerecorded messages. 16 In addition, the FTC has emphasized the consumer s agreement with a seller to receive prerecorded message calls is not transferable to affiliates or third parties. 17 Each seller must negotiate its own agreement with the consumer. The requirement for prior written and signed consent from a consumer to receive prerecorded message telemarketing calls becomes effective September 1, Prerecorded message telemarketing calls must contain an interactive opt-out mechanism. Rule: Section 310.4(b)(1)(v)(B) It is an abusive telemarketing act or practice and a violation of this Rule for a telemarketer to engage in, or for a seller to cause a telemarketer to initiate any outbound telephone call that delivers a prerecorded message unless in any such call to induce the purchase of any good or service, or to induce a charitable contribution from a member of or previous donor to, a non-profit charitable organization on whose behalf the call is made, the seller or telemarketer: (i) allows the telephone to ring for at least fifteen (15) seconds or four (4) rings before disconnecting an unanswered call; and (ii) within two (2) seconds after the completed greeting of the person called, plays a prerecorded message that promptly provides the disclosures required by 310.4(d) [identity of the seller, purpose of the call, and nature of the goods or services] or (e) [identity of the charity and purpose of the call], followed immediately by a disclosure of one or both of the following: (A) in the case of a call that could be answered in person by a consumer, that the person called can use an automated interactive voice and/or keypress-activated opt-out mechanism to assert a Do Not Call request pursuant to 310.4(b)(1)(iii)(A) at any time during the message. The mechanism must: (1) automatically add the number called to the seller s entity-specific Do Not Call list; (2) once invoked, immediately disconnect the call; and (3) be available for use at any time during the message; and (B) in the case of a call that could be answered by an answering machine or voic service, that the person called can use a toll-free telephone number to assert a Do Not Call request pursuant to 310.4(b)(1)(iii)(A). The number provided must connect directly to an automated interactive voice or keypress-activated opt-out mechanism that: (1) automatically adds the number called to the seller s entity-specific Do Not Call list; (2) immediately thereafter disconnects the call; and (3) is accessible at any time throughout the duration of the telemarketing campaign; and (iii) Complies with all other requirements of this Part [16 CFR Part 310] and other applicable federal and state laws. Many of the comments submitted to the FTC by those in the industry indicated interactive technology is now available to allow for an automated voice or keypress-activated opt-out mechanism. The requirement for this type of opt-out mechanism has the effect of prohibiting non-interactive prerecorded messages. 18 The opt-out mechanism will enable consumers who have previously agreed to receive prerecorded message calls from a seller to revoke that agreement. The purpose of the interactive mechanism is to make opting out of prerecorded message calls as easy as opting out of live telemarketing calls. The requirement for the interactive opt-out mechanism to be included in prerecorded telemarketing messages is effective December 1, The opt-out mechanism must be available for calls answered by a live person and those answered by voice mail or an answering machine. The mechanism for an answering machine message must include a toll-free number that connects to an automated interactive mechanism for exercising a Do Not Call request. The opt-out mechanism for a call answered by a live person must be available throughout the message. The opt-out mechanism for a call answered by an answering machine must be available 3

4 throughout the duration of the campaign. If a seller or telemarketer is able to determine whether a call is answered by a person or by an answering machine, the message may be tailored to include the appropriate opt-out message and mechanism. 19 A requirement of the opt-out mechanism is the consumer s request must be automatically added to the entity s Do Not Call list. After the opt-out has been exercised by the consumer, the call must be immediately disconnected. The FTC indicated a brief automated acknowledgment the telephone number of the person has been added to the entity s Do Not Call list is permissible prior to disconnect. 20 Prerecorded healthcare messages are exempt from the Rule. Rule: Section 310.4(b)(1)(v)(D) This paragraph (v) shall not apply to any outbound telephone call that delivers a prerecorded healthcare message made by, or on behalf of a covered entity or its business associate, as those terms are defined in the HIPAA Privacy Rule, 45 CFR In evaluating this exemption, the FTC concluded requiring the prior written agreement of patients to receive prerecorded calls subject to HIPAA could burden or jeopardize the improved medical outcomes of such calls. These calls have enabled healthcare providers to achieve higher rates of compliance with treatment programs at low cost. 21 The FTC noted the number of healthcare-related calls subject to HIPAA is limited by the nature of the calls. Healthy consumers would likely receive infrequent annual reminders of check-ups, immunizations and health screenings. For consumers with a medical condition, the calls would continue only for as long as healthcare follow-up continued to be medically necessary. 22 The FTC reasoned there is no incentive, and no likely medical basis for providers to boost sales through increasing frequency or volume of calls. In addition, the reasonable consumer would not consider prerecorded healthcare calls coercive or abusive, the types of calls the Rule is designed to prevent. 23 Healthcare-related calls subject to HIPAA include calls by medical providers, durable medical equipment suppliers, and Medicare Part D providers and their third-party telemarketers. 24 For calls to be covered by the Rule, they must be part of a plan, program or campaign which is conducted to induce the purchase of goods or services. 25 Prerecorded calls to induce a consumer to select a particular healthcare plan or provider would meet this definition. However, calls by a plan or provider previously selected arguably do not constitute a plan, program or campaign which is conducted to induce purchases. 26 These calls are generally in the nature of medical treatment and prevention reminders. The exemption would not apply, however, to sales of over-the-counter medications and dietary supplements unless they are prescribed by the covered entity as part of a plan of treatment. 27 Federal Communication Commission Rule for Prerecorded Message Calls to Cell Phones In 1991, Congress passed the Telephone Consumer Protection Act ( TCPA ) 28 in response to consumer concerns about unsolicited telephone marketing calls to their homes and the increasing use of automated and prerecorded messages. In 1992, the Federal Communications Commission ( FCC ) passed rules ( TCPA Rules ) to implement the TCPA. 29 Included in the TCPA Rules is the following: No person or entity may initiate any telephone call (other than a call made for emergency purposes or made with the prior express consent of the called party) using an automatic telephone dialing system or an artificial or prerecorded voice to any telephone number assigned to a paging service, cellular telephone service, specialized mobile radio service, or other radio common carrier service, or any service for which the called party is charged for the call. 30 4

5 In accordance with this section, no prerecorded message calls may be sent to a cell phone, regardless of the purpose, without the prior express consent of the person called. The FCC has never indicated this consent must be in writing, only that it be express. In January 2008, the FCC issued a clarification to this requirement. In this clarification, the FCC stated the provision of a cell phone number to a creditor; e.g., on a credit application, reasonably evidences prior express consent by the cell phone subscriber to be contacted at that number regarding the debt. 31 This clarification is applicable only to prerecorded message calls in connection with a debt. The FCC, in reaching its conclusion for the clarification, relied on the legislative history of the TCPA, specifically a House Report. This Report stated, [t]he restriction on calls to emergency lines, pagers, and the like does not apply when the called party has provided the telephone number of such a line to the caller for use in normal business communications. 32 The FCC s interpretation of its own rule was challenged in court. On May 20, 2008, the United States District Court for the Northern District of California, in Lecker v. CashCall, Inc., 33 found the FCC s clarification manifestly contrary to the statute and unreasonable because it provides an exception for implied intent, which is contrary to Congress intent in the TCPA. 34 The Court stated, in order for the [prior express consent] exemption to apply, the called party must expressly consent not only to receiving telephone calls, but to receiving calls made by a caller using an autodialer or prerecorded message. 35 Defendant CashCall has indicated intent to appeal. Any appeal will be heard by the Ninth Circuit Court of Appeals. Until any appeal is heard, this case should be considered law in at least California, and potentially all of the Ninth Circuit states. These states include Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington. As a result of the FCC s Clarification and the Leckler case, there are varying levels of prior express consent to receive prerecorded message calls on a cell phone. In California, and potentially all Ninth Circuit states, the consent must be very clear as outlined by the court and noted above. In all other states, if the consumer has given the cell phone number in connection with a debt, prerecorded message calls may be made to that number regarding the debt. For all other call types in these states, the consumer must have given prior express consent to receive prerecorded message calls on the consumer s cell phone U.S.C CFR CFR 310.4(b)(1)(iv). 4 FTC Release, November 12, FTC Release, October 3, FTC Release, August 19, FR CFR 310.2(u) CFR 310.2(z) CFR 310.2(bb) CFR 310.2(cc) CFR 310.4(b)(1)(v)(A)(iv), footnote FR FR 51181, footnote FR CFR 310.4(b)(1)(v)(A)(ii) FR

6 18 73 FR FR FR 51186, footnote FR FR FR FR CFR 310.2(cc) FR 51189, footnote FR 51192, footnote USC CFR CFR (a)(1)(iii) FR FR F. Supp. 2d 1025 (2008) F. Supp. 2d F. Supp. 2d