SPECIAL FOCUS: FTC Issues Revisions to the Telemarketing Sales Rule
On November 18, 2015, the Federal Trade Commission (FTC) released a final rule setting forth a number of key amendments and clarifications to its Telemarketing Sales Rule (TSR). This final rule follows the issuance of a notice of proposed rulemaking in July 2013 and a public comment period. The rule addresses and now prohibits certain payment methods that the FTC has found to be associated with illegitimate telemarketing businesses. Of greater concern to a broader spectrum of telemarketers are amendments that update and clarify provisions related to the federal Do Not Call (DNC) Registry and call recording requirements for certain transactions.
Prohibition on Remote Payment Methods
The final rule focuses primarily on the various types of "novel payment methods" that are used by unscrupulous telemarketers. They include remotely created checks and payment orders, cash-to-cash transfers, and cash reload mechanisms. According to Jessica Rich, Director of the FTC's Bureau of Consumer Protection, "con artists like payments that are tough to trace and hard for people to reverse," adding that "the FTC's new telemarketing rules ban payment methods that scammers like, but honest telemarketers don't use."
Specifically, the amendments will bar telemarketers from receiving payments through traditional "cash-to-cash" money transfers (provided by companies like MoneyGram, Western Union, and RIA) and through "cash reload" mechanisms such as MoneyPak, Vanilla Reload, or Reloadit packs, which are used to add funds to existing prepaid cards.
The amendments also expand the TSR's ban on charging fees in advance of providing services to recover losses resulting from, ironically, prior telemarketing scams. The amendments broaden this provision to cover recovery services for any transaction.
The FTC claims that the amendments narrowly address the offensive payment methods without impeding industry from developing new and alternative payment methods that legitimate marketers can employ.
Do-Not-Call Amendments and Clarifications
Of greater relevance to businesses are amendments and clarifications with respect to the DNC Registry and other do-not-call requests made by consumers. Specifically they address:
- Existing Business Relationships. If a consumer's number is on the DNC Registry, sellers and telemarketers must demonstrate that they have (i) an existing business relationship (EBR) with the person, or (ii) the person's express written agreement to receive calls (EWA). According to the FTC, this clarification is intended "to make it unmistakably clear that the burden of proof for establishing an EBR or EWA as an affirmative defense to otherwise prohibited calls to numbers on the registry 'falls on the seller or telemarketer relying on it.'" While this requirement may appear obvious to many, the FTC felt it necessary to clarify this responsibility nonetheless.
Perhaps more importantly, the FTC also noted that an EBR or EWA belongs only to the "specific seller" that obtained it directly from the consumer. The obligation that the lead be "obtained directly from the consumer" might be problematic for companies that rely on third-party lead generators. The FTC cautions, "cold calls to consumers whose names and numbers appear on a calling list purchased from a third party list broker are prohibited . . . because the calls are not placed by the specific seller that obtained the EBR or EWA." Given this statement, it will be interesting to see how the FTC views leads generated by a third party where the intended user of the lead is disclosed to the consumer, as is current industry practice.
- Entity-Specific Do-Not-Call Lists.
- The ruling also prohibits companies from placing unfair burdens on consumers who wish to be placed on a seller's/telemarketer's entity-specific do-not-call list. For example, impermissible burdens include, among others, harassing consumers who make such a request, hanging up on them, requiring the consumer to listen to a sales pitch before accepting the request, and assessing a charge or fee for honoring the request.
- Further, the TSR now specifies that if a seller or telemarketer does not get the information needed to place a consumer's number on its entity-specific do-not-call list, the business may not claim protection under the safe harbor for isolated or accidental violations.
- DNC Registry Fees. The revised TSR emphasizes that no person may participate in any arrangement to share the cost of accessing the DNC Registry, including any arrangement with any telemarketer or service provider to divide the costs to access the registry among various clients of that telemarketer or service provider.
Express Verifiable Authorization
The TSR requires companies to obtain a consumer's express verifiable authorization prior to processing a payment or collection of a product or service, or a charitable donation where the consumer's billing information is not a credit or debit card. This authorization may be achieved in various ways, including orally where the authorization is recorded and made available to the consumer, donor, and the consumer's bank or billing entity. Before the adoption of the final rule, the TSR required that the authorization include several items of information, such as the amount and date of the payment, the account to be charged or debited, and the consumer's name, but not the goods or services being purchased. The revised TSR now requires that this recording include an accurate description of the goods, services or charitable contribution for which payment authorization is sought.
This amendment, which several commenters supported and which received no objections, was initiated by the FTC in response to telemarketing sales that failed to disclose the actual goods and services being purchased in the consumer's authorization. The FTC noted that it has uniformly interpreted this provision of the TSR to include this information, but decided to adopt the proposed amendment because its "law enforcement experience shows that some sellers and telemarketers appear to have omitted this information intentionally from their audio recordings to conceal from consumers the real purpose of the verification recording and the fact that they will be charged."
It is important to note that the express verifiable authorization standard is only required where a credit or debit card is not provided for payment, which would likely render this issue moot for the vast majority of telephonic transactions. It would only apply to the few alternative payment mechanisms still available to telemarketers following the bans discussed above.
Business-to-Business Exemption
The FTC clarified that the TSR's business-to-business DNC exemption extends only to calls designed to induce a sale to or contribution from a business entity; it does not cover soliciting employees at their places of business to make personal charitable contributions or to purchase goods or services for their individual use. The FTC explained that "this amendment is simply a clarification of the scope of the existing exemption, not a change," and is intended to "further deter telemarketers from attempting to circumvent the DNC registry by soliciting employees at their places of business to make personal charitable contributions or to purchase goods or services for their individual use."
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$8.5M TCPA Settlement Claims to Be Largest Per-Member Deal Yet
In what the plaintiff claims will result in the largest per-class-member payout in a Telephone Consumer Protection Act settlement to date, Western Union has agreed to pay $8.5 million to a class of 823,472 individuals.
Jason Douglas sued the company in 2014 after receiving an allegedly unsolicited text message asking if he wanted to "opt in" for updates from Western Union. Douglas claimed that he never provided consent to receive any texts from the company and filed a putative class action alleging violations of the TCPA.
After "extensive negotiations" over the course of several months, coupled with multiple mediation sessions, the parties reached an agreement. Western Union agreed to provide $8.5 million for a settlement fund that could provide up to $650 per class member after payment of attorneys' fees and costs.
"[W]hen measured apples-to-apples against other court-approved TCPA settlements in this District and nationwide, this Settlement is among the most superior TCPA class action settlements in the country—ever," Douglas argued in his motion for preliminary approval of the deal, especially in light of the numerous defenses raised by Western Union.
First, the defendant contended the dispute was subject to arbitration. Text messages from the company are sent to those who registered an online account with Western Union and, as part of that process, consumers agreed to terms and conditions requiring that any dispute be submitted to arbitration subject to a class action waiver.
In addition, registrants for an online account provided the requisite consent to receive text messages from the company because they voluntarily provided their wireless telephone numbers during the process, and the equipment used to send the texts did not qualify as an automatic telephone dialing system under the statute.
Although both sides believed their positions to be meritorious, they elected to settle by defining the class as those individuals who received one or more unsolicited text messages sent by or on behalf of Western Union since March 12, 2010. This group of 823,472 will receive a pro rata cash award upon submission of a valid claim.
After deducting notice and administration costs (estimated at around $240,000), a requested attorneys' fee award (35 percent of the fund, or roughly $2.891 million), and an incentive award ($5,000) from the $8.5 million fund, $5,364,000 will be distributed among members of the class.
According to the motion, "Class Counsel estimates that if 1%, 3%, or 5% of Class Members submit Valid Claims, each said Class Member will receive approximately $651.37, $217.12, or $130.28 respectively." Class Counsel argued that "This Settlement is . . . designed to afford relief to as many Class members as possible." To put these amounts in perspective, Douglas compared them to other sizable TCPA settlements if 100 percent of the class members filed claims.
The largest deal, $75 million paid by Capital One to more than 17.5 million class members, would pay out $4.31 per class member, topped only slightly by the $40 million HSBC settlement with more than 9 million class members for a rate of $4.41 per class member.
"[O]n an apples-to-apples basis (comparing settlement common funds to class sizes), Settlement Class Members have the opportunity to receive more than double (and in some cases more than triple) what class members have received in other court-approved TCPA settlements," Douglas claimed, with $10.32 per class member. Given that the other deals were all deemed fair, adequate, and reasonable, "there should be no doubt that this Settlement readily satisfies these same standards," the plaintiff argued.
To read the motion in support of preliminary approval of the settlement in Douglas v. The Western Union Company, click here.
Why it matters: As TCPA class actions show no signs of slowing, the settlement deals show no signs of getting smaller. Even as compared to two of the largest TCPA agreements on record (Capital One's record-setting $75 million deal and HSBC's $40 million settlement), Western Union's $8.5 million payout with a smaller number of class members makes it the current contender for the largest per-member deal—for now.
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Triumphant on TCPA Claims, Defendant Must Pay Damages Under State Law for Text Messages
Although a federal court judge determined that the system used by a Telephone Consumer Protection Act defendant was not an automatic telephone dialing system for purposes of liability under the statute, the court said the plaintiff was entitled to damages for his claim under state law.
In 2012, Torrey Gragg called Orange Cab Company to request a ride. He completed his ride and the next day received a text from the company stating: "Taxi #850 dispatched @ 5:20. Smart phone? Book our cabs with Taxi Magic - #1 FREE taxi booking app." Gragg filed a putative class action suit alleging violations of the TCPA, as well as Washington's Commercial Electronic Mail Act (CEMA) and Consumer Protection Act (CPA).
Last year, Orange Cab successfully convinced U.S. District Court Judge Robert S. Lasnik that the system used by the company to send text messages to customers did not constitute an automated telephone dialing system (ATDS) under the TCPA. The system had the potential to store, produce, or call randomly or sequentially generated numbers, the court acknowledged, but lacked the present capacity to do so. The judge granted summary judgment to Orange Cab on the TCPA claim.
Gragg pushed forward on his state law claims, however, and moved for summary judgment on the grounds that the text he received was a "commercial electronic text message" under CEMA that entitled him to at least statutory damages of $500 per violation. This time, Judge Lasnik agreed with the plaintiff.
CEMA precludes the transmission of an electronic commercial text messages to a telephone number assigned to a Washington resident for cellular service. "Commercial" is defined as a message "sent to promote real property, goods, or services for sale or lease."
The text message was intended to perform two functions, the court said: to notify the customer that the requested cab had been dispatched (a customer service function) and to promote the use of the Taxi Magic app to make future bookings (a marketing function).
"Messages that serve both customer service and marketing purposes (such as calls from mortgage brokers notifying customers that interest rates had fallen) are 'sent to promote real property, goods, or services for sale or lease,'" the court said. Neither the statute nor the regulations require an explicit mention of a good, product, or service.
While customers clearly have an interest in being apprised of the status of their orders—or the dispatch of their cabs—adding a marketing message moved the text into the realm of liability. "If the dispatch notification were unencumbered by the marketing message for Taxi Magic, it would not have been a 'commercial electronic text message' under CEMA," Judge Lasnik wrote.
Having determined the text message violated the state statute, the court then considered whether damages were appropriate. CEMA did not create a private right of action for consumers with regard to text messages. A 2005 amendment adding a prohibition against phishing did establish a private right of action for that category of unlawful activity, leading the court to conclude that the legislature knew how to create such a right and declined to do so for text messages.
However, the court said that the plaintiff could enforce a violation of CEMA under the CPA, which permits recovery in a civil action for the greater of $500 or actual damages.
To read the order in Gragg v. Orange Cab Company, click here.
Why it matters: The case provides an important reminder for TCPA defendants that even with a victory on the federal statute, liability may remain under state law. In the Gragg case, Orange Cab successfully argued that its system did not constitute an ATDS but could not overcome the threshold for liability under Washington's CEMA, leaving the company on the hook for damages.
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Providing Number Demonstrates Consent, California Court Rules
Because the plaintiffs voluntarily provided their cellphone numbers to Microsoft, the company had their express consent to text them and cannot be held liable under the Telephone Consumer Protection Act for the messages, a federal court judge in California has ruled.
Edmund Pietzak filed a putative class action against Microsoft after receiving promotional text messages. He claimed the company relied upon deceptive sweepstakes and discount promotions to gather cellphone numbers and then sent text messages in violation of the TCPA and the California's Unfair Competition Law (UCL).
Microsoft countered that the plaintiffs gave their consent to receive such messages by providing their cellphone numbers and filed a motion to dismiss the suit.
Granting the motion, U.S. District Court Judge Manuel L. Real referred to the Federal Communications Commission's 1992 implementing regulations for the TCPA, which state: ". . . persons who knowingly release their phone numbers have in effect given their invitation or permission to be called at the number which they have given, absent instructions to the contrary. Hence, telemarketers will not violate our rules by calling a number which was provided as one at which the called party wishes to be reached."
Many federal district courts have relied on the 1992 FCC Order to hold that plaintiffs who provided a business with their phone numbers and then received a text message have no claim under the statute, the court said, citing decisions from across the state. "This case is no different than those before it."
"Under the FCC's definition, it is undisputed that Plaintiffs 'knowingly release[d]' their cellphone numbers to Microsoft when they participated in the promotional activities," Judge Real wrote. "Through such acts, Plaintiffs gave permission to be texted at that number by an automated dialing machine. Plaintiffs do not allege that Defendants, unprompted, began sending text messages directly to their mobile phones. Rather, the allegations are clear that it was Plaintiffs who initiated the receipt of text messages from Microsoft by voluntarily participating in Microsoft promotions. In doing so, Plaintiffs not only unequivocally expressed their interest in learning more about Microsoft's promotional offers, but they also provided their consent to receive that information through text messaging."
As the plaintiffs' UCL claim was premised entirely upon the alleged violation of the TCPA, it also failed, the court said. The plaintiffs also lacked standing for the UCL claim, Judge Real added, because they did not allege they suffered any lost money or property or suffered any economic injury. While Pietzak claimed he dealt with "repeated embarrassment, financial loss, and emotional injury," the court was not moved by the "conclusory allegations."
"Even assuming the truth of Plaintiffs' allegations, their claims fail because Microsoft's text messaging program complies with the TCPA," the court concluded. "Plaintiffs voluntarily sought specific information about Microsoft promotions, providing both their phone numbers and their express consent to receive that information by texting specific keywords from their mobile phones. There is no cognizable legal theory that could support liability against Defendants, and dismissal with prejudice is appropriate."
To read the order in Pietzak v. Microsoft Corp., click here.
Why it matters: As the complaint was dismissed with prejudice, Microsoft could not be liable under the TCPA for its text messaging program. The plaintiffs voluntarily provided their cellphone numbers, which granted permission for the company to contact them and to establish their express consent to receive text messages. Interestingly, the court's order does not discuss that prior express written consent is required for promotional or marketing messages or that certain disclosures are required for written consent.
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California Court: Desktop Telephone Not an ATDS
Interpreting the Federal Communications Commission's July Order, a California federal court held that a company's manual use of a desktop telephone did not trigger Telephone Consumer Protection Act liability under the agency's "potential capacity" standards for an automated telephone dialing system (ATDS).
Holly Freyja sued Dun & Bradstreet for allegedly calling and soliciting her while her number was listed on the National Do Not Call Registry. The defendant moved to dismiss, arguing that the call was made by a third-party contractor who was a sole proprietor using an Avaya 4610 desktop telephone. The contractor manually pressed by hand each digit of the phone number, Dun & Bradstreet told the court.
An ATDS is a piece of "equipment which has the capacity to (a) store or produce telephone numbers to be called, using a random or sequential number generator; and (b) to dial such numbers," per Section 227(a)(1) of the TCPA.
U.S. District Court Judge Dale S. Fischer looked to the FCC's recent Order that discussed what constitutes an ATDS. "The Commission has long held that the basic functions of an autodialer are to 'dial numbers without human intervention' and to 'dial thousands of numbers in a short period of time,'" she wrote, quoting from the Order.
"The undisputed facts demonstrate that Plaintiff was not called from an ATDS," the court said. "Evidence demonstrated that the Avaya 4610 desktop phone cannot, by itself, be used as an autodialer. At best, it could be used to receive calls from an autodialer if the agent's computer had the appropriate software, the agent had proper login credentials, and the dialer was appropriately configured."
"But none of this was true for the phone used by the agent that called plaintiff," Judge Fischer wrote. Although Freyja argued that the contractor's phone was connected to a desktop computer, the court said she provided no explanation for why that fact contradicted any evidence put forth by the defendant.
In addition, the court found that the call to the plaintiff was not a "telephone solicitation" as defined by the statute: "the initiation of a telephone call or message for the purpose of encouraging the purchase or rental of, or investment in, property goods, or services, which is transmitted to any person."
The defendant submitted evidence showing that the call was made for the purpose of acquiring information about the commercial services provided by Freyja and not to market to her or to sell her anything, the court said. The only piece of evidence provided by the plaintiff to support her contention was her deposition response to the question, "Do you believe [the defendant] could have possibly been trying to sell you some type of product or service?" to which she answered "yes."
"But Plaintiff's mere belief that Defendant 'could have possibly' been trying to sell something—especially with no further foundation—does not raise a reasonable inference that Defendant was actually trying to sell her anything," Judge Fischer said. "Notably, Plaintiff points to no evidence that she was subjected to marketing during the call or any other reason to believe that the calls were for a sales purpose. Plaintiff implicitly suggests … that because Defendant sells business information it gathers to other people, calls made to gather that information are solicitations. But this is just incorrect. The regulation bans calls to sell property, goods, or services, not calls to acquire information."
To read the order in Freyja v. Dun & Bradstreet, Inc., click here.
Why it matters: Despite the FCC's broadening of the definition of an ATDS to include equipment which has the capacity to store or produce telephone numbers to be called, the court found that the defendant did not violate the statute. The desktop telephone used by the third-party contractor required numbers to be dialed by hand and this manual effort requiring human intervention resulted in dismissal of the lawsuit. While the judge had no trouble making the call in this case, other courts across the country have struggled with what constitutes an ATDS.
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