Did anyone else pick up the Federal Trade Commission’s Biennial Report to Congress on the Do Not Call Registry over the holidays? If, like me, you found the first two “Girl with the Dragon Tattoo” books to be identical and were looking for more interesting reading, you may have been surprised at some of the nuggets buried deep in the FTC’s report. Let me share them with you here, since failing to understand how the FTC and state regulators interpret these laws, such as what constitutes an existing business relationship, may leave you exposed to liability for a seemingly innocuous outbound calling campaign to consumers whom you believe are your customers.
Do you have an EBR with your Customer?
The FTC and the FCC enforce the federal DNC registry, which exists under the federal Telemarketing Sales Rule and Telephone Consumer Protection Act. Various states also have their own DNC laws, and while many rely on and require companies to subscribe to the federal registry, several maintain their own lists which must be separately obtained and scrubbed. Many of these state laws are more restrictive than the federal laws, so simply being aware of and relying on the two federal laws is not enough.
For example, the two federal laws and most states exempt from the DNC registry calls made to consumers with whom the caller has an existing business relationship (EBR). However, whereas the federal laws and many state laws define an EBR as a purchase or transaction within the last 18 months or an inquiry made within the past 3 months, certain states have a more limited purchase or transaction period (e.g., 6 or 12 months) or do not recognize the inquiry exception at all. Thus complying with only the federal laws in an outbound campaign, even to consumers with whom you believe you have an EBR, may not be enough to avoid liability under some state laws.
What if you do not have a direct relationship with a consumer but are offered a list of consumers who have expressed interest in receiving a call about a product or service you offer? Can you rely on the EBR exception to avoid obtaining and scrubbing the list against the DNC registries?
The FTC says no. In its report, the agency makes clear that companies that purchase lists of consumers who have supposedly opted in to receive calls for the category of products or services they offer (e.g., mortgage refinance, student loans, weight-loss products) do not have an EBR with those consumers, despite the purported opt-in, as the consumer does not have a relationship with the company. The FTC notes in its report that these lists are typically developed by third-party lead-generator firms through the use of web advertising, coupons or samples, or simply “cold calling” consumers to determine whether they have any interest in a particular product or service.
These firms, the FTC observes, may themselves have an EBR with the consumer, but the companies to whom these lists are offered do not. So, unless the lead-generator firm indicates that it is calling on behalf of a particular company or specifically alerts the consumer that she should expect a call from that company, the FTC claims that no EBR exists and the list must be scrubbed against the applicable DNC registries. The FTC report cites several cases in which these facts were the underlying cause of action, each of which resulted in multi million-dollar penalties and court-filed settlements.
Does a Sweepstakes entry constitute an EBR?
Obtaining a consumer’s name or phone number through entry in a contest does not establish a relationship that may be relied upon for an EBR. This was the issue in a case the FTC brought last year against the makers of the Rascal Scooter, where entrants to a sweepstakes received telephone calls from the company, despite their being on the federal DNC registry. The FTC cried foul and the company had to pay a $100,000 fine and enter into a court-filed settlement agreement.
Does an EBR extend to affiliates and subsidiaries?
The FTC report discusses situations where a company seeks to extend its EBR with its customers for calls made by the company’s affiliates or subsidiaries. In determining whether such calls are exempt from the DNC, the FTC indicates that it will rely heavily on the consumer’s expectations. The FTC asks, “Would the consumer likely be surprised by that call and find it inconsistent with having placed their telephone number on the national registry?”
In making this determination, the FTC notes that it will consider whether the subsidiary’s or affiliate’s goods or services are similar to the seller’s and the similarity between their names. The greater the similarity, the more likely it is that the call will fall within the EBR.
Don’t forget your internal DNC obligations
In addition to obtaining and scrubbing an intended call list against the applicable DNC registries, companies are also required by law to maintain a list of consumers who have requested not to receive calls from them. Commonly referred to as a “company-specific” DNC list, consumers who make these requests may not be called at all, subject to limited exceptions for purely transactional calls, even where an EBR exists. Companies that are otherwise diligent in registering for and scrubbing against the DNC registries are not always aware of their internal list obligations and thus risk legal liability and upsetting customers who make these requests.
Calling existing customers is a smart and efficient business strategy. As the cost of new customer acquisition continues to skyrocket, leveraging existing relationships with customers is becoming more important than ever. Calling a list of pre-qualified leads may also be smart business, as long as appropriate protocols are followed. But fruitful though these campaigns can be, the risks associated with placing outbound calls cannot be ignored. Paying careful attention to all laws and regulations in this area, and understanding their nuances and how the regulators interpret them, is an absolute necessity in today’s environment in order to avoid costly and burdensome enforcement actions.
Marc S. Roth is a partner in the New York City office of Manatt, Phelps & Phillips, LLP, where he counsels clients in all areas of advertising, direct marketing and privacy law.
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