Three list companies that allegedly violated the Federal Trade Commission’s Telemarketing Sales Rule (TSR) have settled with the agency, agreeing to pay a combined $187,500 in fines and to refrain from providing lists to telemarketers engaged in illegal business practices.
According to the stipulation orders, Fort Lauderdale, FL-based ListData Computer Services Inc. is required to pay $100,000; NeWorld, Asheville, NC will pay $62,500; and Guidestar Direct Corp., which does business as Carney Direct Marketing, will pay $25,000.
The ListData settlement contains language requiring the firm to pay an additional $316,000 if it is found to have misrepresented its financial situation.
The FTC claimed that the companies the defendants rented lists to had provided scripts that were in clear violation of the TSR. For example, a script received by ListData read, in part, “I’m an issuing agent with Credit Card Services… [Y]ou have been approved with no problems for a Visa or Mastercard with a spending limit of up to $2500.00…[T]here is no annual fee…it’s been replaced with a one-time, lifetime membership feel of $297.00.”
According to the FTC, each of the three companies has “rented its list to telemarketers of advance fee credit products. The TSR prohibits requesting or receiving payment in advance of obtaining an extension of credit when the seller or telemarketer has guaranteed or represented a high likelihood of success in obtaining or arranging an extension of credit.”
The FTC continued, “[b]ecause it is obvious from the face of the scripts that the TSR is being violated, [each company] should know that, by renting to these companies lists of responsive customers, it is assisting and facilitating in the unlawful marketing of advance fee credit products.
According to Peter Carney, president and owner of Guidestar Direct, the FTC approached him in September 2002, with the suspicion that some of the lists his company managed were in violation of the Gramm-Leach-Bliley Act. Under threat of subpoena, Guidestar Direct gave the FTC data cards from seven of its lists, the five most recent orders for each list, and the sample pieces that accompanied the orders. At the time, the FTC had made similar request of a total of seven companies, Carney said.
As it happened, a few of the list rentals were for telemarketing campaigns, and Guidestar Direct supplied the FTC with the scripts.
“Nine months later, after hearing nothing, the FTC notified us that we were in violation of the Telephone Sales Rule, not Gramm-Leach-Bliley,” Carney said.
“Our legal council was so appalled that this action was so far reaching, and so far out of the box for any previous prosecution of the FTC in a third-part facilitating situation, that they arranged from me sit in front [Howard Beales, the FTC’s director of the Bureau of Consumer Protection] in June of 2003,” Carney continued.
The meeting was less than successful. “We argued that the list manager and list brokers are market makers,” Carney said. “We help industry bring product to the consumers, which is the basic underlying foundation of our economic system. And should not be held liable for a company’s sins that we have no financial ties to. List managers and brokers are market markers.”
But Carney suspected that Beales was a man on a mission. “[Beales] informed me that the list managers and the list brokers are the ‘choke point’, and if he could stop the flow of data going through us, then the occurrence of fraudulent telemarketing would be stemmed greatly,” Carney said. “That’s about when the meeting concluded.”
In August 2003, Carney said he sought guidance from the Direct Marketing Association, and was told that the organization couldn’t get any information about the case, and that Carney should mute his complaints so the proceedings didn’t become a Carney Direct Marketing issue. Four of the other six companies ultimately did not have complaints issued against them.
DMA spokespeople were unavailable for comment on this assertion. However, in a statement addressing the FTC settlements, the DMA said that they appeared to be in line with a number of DMA guidelines, and that protecting the proper use of marketing lists is vital to ensuring that lists remain valuable business assets.
“Specifically, [the] announcement appears to reaffirm the importance of the DMA guideline (Article 35, see: http://www.the-dma.org/guidelines/ethicalguidelines.shtml#collect) that calls on marketers to review marketing materials prior to the rental of marketing lists,” according to the DMA statement.
The DMA also “emphasized to its members the importance of understanding and abiding by the various laws and regulations that govern not only the content of marketing-offers, but also how rules might vary depending on the marketing medium used to make those offers. This is especially pertinent to the extensive and complicated FTC, Federal Communications Commission, and state laws and regulations governing telephone marketing. Members have the responsibility to appropriately manage the complexity of this newly heavily regulated environment.
In addition, the DMA reminded members that, “earlier this year, the FTC announced that it plans to increasingly devote its attention and resources to marketing practices in the credit industry. Accordingly, The DMA recommends that, when in doubt, members involved in marketing offers pertaining to credit closely consult with appropriate counsel to ensure that they are operating in accordance with all applicable laws, regulations and DMA guidelines.”
Guidestar Direct’s attorneys felt that the case was winnable, but that the cost of the legal battle could reach $250,000, Carney said. At that point, the company agreed to the FTC’s stipulated order.
Carney said that his company has gotten out of the telephone list business, which had at the start of the FTC’s activities amounted to no more than 4% of his total business. He also described the process as a “which hunt”.
“Spell it that way, because you don’t know which way they’re going to come at you,” he said.
Representatives from the other two list companies were unavailable for comment at deadline.
The legal papers concerning ListData were filed in the United States District Court, Southern District of Florida, the ones dealing with NeWorld were entered in the United States District Court, Western District of North Carolina and the papers regarding Guidestar Direct were filed in the United States District Court, Central District of California, Southern Division.
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