November 18, 2003

           Questions concerning the FTC’s and FCC’s telemarketing rules

        On October 1, 2003, th...
Table of Contents

Question topic                                                                                  Page

C...
Contacts with an individual whose telephone number is on the national do not call
(“DNC”) list

       A call to set up an...
case, it is not the mail house’s responsibility to check the purchased list against the
    national DNC list. The bank, a...
While there is a prohibition on using artificial or prerecorded messages, there is an
    exception if the bank has an EBR...
registration as a seller versus a telemarketer, and a good summary of those differences
   is at:

   https://telemarketin...
If a person or entity making a call for telemarketing purposes
          (or on whose behalf such a call is made) receives...
entity or individual on whose behalf the call was placed, and that the call was for
        ‘telemarketing purposes.’”9 Ma...
23. Does the fax rule apply to e-mail as well?

   No.

   24. Does the fax rule apply to faxing CD and mortgage rate shee...
OMB review under the Paperwork Reduction Act

     28. What is the status of the provisions within the FCC’s Rule that wer...
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November 18, 2003 Questions concerning the FTC's and FCC's ...

  1. 1. November 18, 2003 Questions concerning the FTC’s and FCC’s telemarketing rules On October 1, 2003, the American Bankers Association and the American Bankers Insurance Association co-sponsored a telephone briefing concerning the telemarketing regulations issued by the Federal Trade Commission (“FTC”) and the Federal Communications Commission (“FCC”). Among the speakers was Erica McMahon from the FCC. Time did not permit for discussion or resolution of all questions posed. Since the October telephone briefing, we have collected all of those questions and organized them. We also have had informal conversations with staff at the FCC concerning some of the issues presented. This paper provides answers to the questions for which there appears to be a definite answer, although in several cases, as noted, the issue is pending before the FCC. Note, however, that this paper is intended to provide general guidance concerning the requirements of the FCC and FTC regulations and does not constitute a legal opinion concerning the applicability of those regulations. Readers should consult legal counsel before making any decisions concerning compliance with the regulations. In several days, we will provide a list of questions for which there as yet is no definite answer, but which ABA and ABIA are working with the FCC to resolve. Note, finally, that the applicability of the FCC’s rule or the FTC’s rule to a particular scenario involving a bank depends primarily on whether the bank is using an in-house telemarketing firm (FCC rule applies) or a third party telemarketing firm (FCC rule applies, unless the FTC’s rule is more restrictive). Accordingly, citation is generally to the FCC regulations and related documents. Nessa Feddis James T. McIntyre American Bankers Association Chrys D. Lemon (202) 663-5433 McIntyre Law Firm, PLLC Kevin McKechnie (202) 659-3900 American Bankers Insurance Association (202) 663-5163 1
  2. 2. Table of Contents Question topic Page Contacts with people on the national do not call (“DNC”) list……………………. 3 Setting up an appointment.……………………….………………….…….. 3 Mailings…………………………………….……………………………….3 Exceptions to the DNC prohibition…………………………………………………4 Established business relationship (“EBR”) based upon on “inquiry”………4 EBR and people who are no longer bank customers………………………. 4 EBR and use of an artificial or prerecorded voice for messages……………4 Tax exempt organizations..................................................................………..……..5 Upsells………………………………………………………………………………5 DNC list registration by sellers and telemarketers………………………………....5 Accessing the national DNC list……………………………………………………6 Requests to be placed on a company-specific list….……………………………….6 Cell phone numbers…………………………………………………………7 Predictive dialers……………………………………………………………………7 Do not fax rule………………………………………………………………………8 Memorandum of understanding between FCC and FTC……………………………9 Penalties for violating the telemarketing rules……………………………………...9 OMB review……………………………………………………………………..…10 2
  3. 3. Contacts with an individual whose telephone number is on the national do not call (“DNC”) list A call to set up an appointment with someone on the national DNC list 1. A bank wants to call an individual whose telephone number is on the national DNC list. The purpose of the call is to set up an appointment to determine whether the individual is interested in doing business with the bank. Is this permitted? No. A call to set up an appointment is considered to be a telemarketing call if the purpose of the appointment is to sell “property, goods or services,” and, generally speaking, a telemarketing call may not be placed to an individual whose telephone number is listed on the DNC list. Specifically, the FCC’s Report and Order related to its telemarketing rules (“FCC Order”) says that the FCC “decline[s] to establish an exemption [from compliance with the DNC prohibition] for calls made to set ‘face-to- face’ appointments per se. We conclude that such calls are made for the purpose of encouraging the purchase of goods and services and therefore fall within the statutory definition of telephone solicitation. In addition, we decline to exempt entities that make a ‘de minimis’ number of commercial telemarketing calls.”1 Mailing materials to someone on a DNC list 2. A bank wants to send written sales materials (statement messages and inserts promoting products and services) to an individual whose telephone number is on either the national DNC list or a company-specific DNC list? Is this permitted? Yes. The DNC prohibition applies only to outbound telephone calls, not to mailings. 3. A bank purchases a list of names from a third party to solicit for business. The bank sends a direct mail piece and follows up with a telephone call. Is the bank permitted to call these prospects if their telephone numbers are on the national DNC list? No. This involves an outbound telemarketing call, which implicates the DNC prohibition. 4. A bank uses a mail house to purchase lists for direct mailings. The bank follows up its mailings with telephone calls. Who is responsible for checking the national DNC list before making the calls? The bank, as the “seller,” is responsible for checking the purchased list against the national DNC list. If the bank uses an outside telemarketing firm to make the follow- up calls, the outside telemarketing firm is responsible for checking the list. In either 1 FCC’s Order ¶ 49. 3
  4. 4. case, it is not the mail house’s responsibility to check the purchased list against the national DNC list. The bank, as the seller, must buy a portion of, or the entire, national DNC list and obtain its own account number to access that list. The bank may provide its account number to the outside telemarketing firm it uses, and the telemarketing firm may access the list on behalf of the bank at no charge using the bank’s account number. Exceptions to the prohibition on calling an individual listed on the national DNC list “Established business relationship” exception based upon an “inquiry” 5. A bank may call an individual listed on the national DNC list if the bank has an established business relationship (“EBR”) with the customer (assuming the individual is not on the bank’s own company-specific DNC list). Assume a non- customer listed on the national DNC list calls a bank to inquire about CD rates, may the bank later call that individual? Yes. An EBR is created by an individual’s “inquiry or application regarding products or services offered by the entity,”2 so a request for information concerning a bank’s CD rates would constitute an “inquiry” and trigger an EBR lasting for 3 months. The existence of an EBR overrides the prohibition against calling someone on the national DNC list (assuming the individual is not on the bank’s own DNC list). “Established business relationship” and people who are no longer bank customers 6. Is a bank permitted to call a customer whose telephone number is listed on the national DNC list if the customer has terminated his relationship with the bank? Yes, for 18 months (assuming the individual is not on the bank’s DNC list). The bank may continue to call customers for up to 18 months after termination of the banking relationship on the basis that closing the account is a transaction. The FCC’s rule defining “established business relationship” refers to a “prior or existing relationship formed by a voluntary two-way communication between a person or entity and a residential subscriber” based on a purchase or transaction, or on an inquiry or application.3 “Established business relationship” and use of an artificial or prerecorded voice for messages 7. Is a bank permitted to use an artificial or prerecorded voice to deliver to an individual on the national DNC list a telephone message that includes an advertisement for a product? 2 47 C.F.R. § 64.1200(f)(3). 3 47 C.F.R. § 64.1200(f)(3). 4
  5. 5. While there is a prohibition on using artificial or prerecorded messages, there is an exception if the bank has an EBR with the individual when the call is made (assuming the individual is not on the bank’s company-specific DNC list).4 Applicability of the DNC requirements to tax exempt organizations 8. Is a credit union a “tax exempt organization” for purpose of being exempt from the DNC rule? No. Only tax exempt nonprofit organizations are exempt from the DNC rule.5 Upsells 9. Assume a mortgage lender has an “affinity relationship” with an association, such as a university alumni association. The alumni association markets various products to its alumni. An alumnus whose telephone number is listed on the DNC list calls the alumni association to ask about a home equity line of credit, and the alumni association transfers the call to its affinity partner, the mortgage lender. Is this permitted? Yes. The scenario you have described involves an “upsell.” 6 The restrictions on calling an individual listed on the DNC list do not apply to an upsell, because the individual initiated the call to the company in the first place. However, other parts of the FTC’s telemarketing sales rule (such as the sales restrictions) may apply. Registration by sellers and telemarketers to access the national DNC list 10. A bank contacts customers to both cross-sell its products and generate new business. To comply with the DNC requirements, the bank, which is covered by the FCC’s rule, must register on the FTC’s website to gain access to the national DNC list. What “Type of Organization” should the bank register as? The bank should register as a seller. Because the FCC has adopted the FTC’s national DNC list and the FTC operates the list, the fact that the bank is subject to the FCC’s rule – and not the FTC’s rule – does not change the result. 11. Is the frequency of access to the FTC’s national DNC list dependent on whether the business is a telemarketer or a seller? No. Access to the national DNC list is limited to once in any 24-hour period, and that applies both to sellers and telemarketers.7 Otherwise, there is a distinction between 4 47 C.F.R. § 64.1200(a)(2)(iv). 5 47 C.F.R. § 64.1200(a)(2)(v). 6 16 C.F.R. § 310.2(dd). 7 See http://www.ftc.gov/bcp/conline/pubs/buspubs/tsrcomp.htm at p. 31. 5
  6. 6. registration as a seller versus a telemarketer, and a good summary of those differences is at: https://telemarketing.donotcall.gov/entity.aspx. 12. Advise how to register to order the national DNC list and the fee information. All of that information is available at https://telemarketing.donotcall.gov/. Telemarketers may access the national registry through an automated, secure website. On the first use, the user provides identification information, including a contact person. Telemarketers must supply the name of the client. After identification of the area codes to be accessed, the subscriber must pay an annual fee by credit card or electronic funds transfer. After the payment has been processed, subscribers access the list with an account number. The subscriber has access, at any time, once the fee is paid. The list will be updated continuously, but users need only update on a quarterly basis. Each subscriber to the DNC list must pay an annual fee, based on the number of area codes. The cost is $25 per area code, up to $7,375 annually. The first five area codes are free, to reduce burden for small businesses doing limited telemarketing. The rule prohibits the sale, purchase, rental, lease, or use of the list for any purpose other than compliance with the rule. A safe harbor protects telemarketers who have attempted in good faith to comply with the DNC rules. Accessing the national DNC list 13. If an affiliate accesses the national DNC list, may all of the affiliates under a holding company use that list? No. Each affiliate must obtain its own list. Requests to be placed on a company-specific DNC list 14. If an individual asks to be placed on a company’s DNC list, which entity’s DNC list should the individual’s telephone number be placed on: (i) the seller of the product?; (ii) the seller’s affiliates?; (iii) an outside telemarketer calling on the seller’s behalf?; or (iv) a service provider? Whose responsibility is it to ensure the number is placed on the company’s list? The individual must be placed on the seller’s DNC list. There is no requirement to place the individual on an affiliate’s DNC list, unless the consumer would expect the telephone number to be placed on the affiliate’s list. As to whose responsibility it is to ensure that the individual is placed on the company-specific list, the FCC’s Rule provides: 6
  7. 7. If a person or entity making a call for telemarketing purposes (or on whose behalf such a call is made) receives a request from a residential telephone subscriber not to receive calls from that person or entity, the person or entity must record the request and place the subscriber’s name, if provided, and telephone number on the do-not-call list at the time the request is made. … If such requests are recorded or maintained by a party other than the person or entity on whose behalf the telemarketing call is made, the person or entity on whose behalf the telemarketing call is made will be liable for any failures to honor the do-not- call request.8 (emphasis added) Cell phone numbers 15. What about calling cell phones? Generally, telemarketers using any kind of automated equipment cannot call cell phone numbers: in this case, the DNC list is irrelevant. The FCC rule provides that one cannot make calls using an automatic telephone dialing system or an artificial or prerecorded voice to any cell phone service if the recipient is charged for the call. The FCC explains in the supplementary information that automatic telephone dialing systems include the now common predictive dialers. However, entities not using automated equipment may call cell phones (using live salespersons), but must exclude any number on the DNC list. Predictive dialers 16. Assume a live operator is unavailable within the 2 seconds required by the rules for predictive dialers, and the prerecorded identification message begins. If a live operator becomes available before the message completes, may the operator come on the line, interrupting the message, and begin his presentation? If not, could the operator wait for the message to finish, and then begin his presentation? The FCC has not addressed this issue specifically. However, the FCC Rule requires that the prerecorded identification message provide the person being called with certain, specified information, so the message should not be interrupted. Once the message has been completed, nothing would prohibit a live operator from coming on the line. In any case, the call would count as an “abandoned call” and be included in the 3 percent cap on abandoned calls. 17. For predictive dialers, the dialer is required to play an automated message if it does not connect the call to a live person within 2 seconds after the completed greeting, which much state “only the name and telephone number of the business, 8 47 C.F.R. § 64.1200(d)(3). 7
  8. 8. entity or individual on whose behalf the call was placed, and that the call was for ‘telemarketing purposes.’”9 May a bank use an easily identifiable “dummy” name so that if a consumer calls back looking for the agent, the business knows that the person is calling because he or she heard this message? The requirement is to provide the name and telephone number of the business, entity or individual on whose behalf the call was placed. The reference to an “individual” is not to the individual who actually made the call, so neither that individual’s name, nor a dummy name, may be provided. 18. Is the verbiage limited to stating only the name of the caller, entity, and phone number, and that the call was for “telemarketing purposes”? Or may the bank also indicate that it is calling regarding bank products or services? The bank may only indicate that it was calling for telemarketing purposes and use the phrase “telemarketing purposes.” It may not say that it was calling regarding bank products or services. Do-not-fax rule 19. Has the amended fax rule been stayed? Yes, it has been stayed until January 1, 2005. 20. What is the amended fax rule? The Telephone Consumer Protection Act prohibits anyone from using a fax machine to send an “unsolicited advertisement” unless the recipient has granted the sender prior express invitation or permission to deliver the advertisement. The amended fax rule requires consent to be evidenced by a signed, written statement that includes the fax number to which the advertisement may be sent and clearly indicates the recipient’s consent to receive such faxed advertisements from the sender. 21. Does the amended fax rule cover faxes sent by tax exempt, nonprofit organizations? This issue is pending before the FCC. 22. Does the do-not-fax requirement apply to business-to-business communications -- even though the DNC restrictions do not apply to calls placed to businesses? Yes. Unlike the DNC requirements, the do-not-fax prohibition is not limited to residential fax numbers.10 9 47 C.F.R. § 64.1200(a)(6). 10 47 C.F.R. § 64.1200(a)(3). 8
  9. 9. 23. Does the fax rule apply to e-mail as well? No. 24. Does the fax rule apply to faxing CD and mortgage rate sheets? This issue is pending before the FCC. 25. Does the fax rule cover faxes sent to real estate agents? This issue is pending before the FCC. Memorandum of understanding between the FTC and FCC 26. What is the status of the memorandum of understanding between the FCC and the FTC? That document is still being drafted. Penalties for violating the telemarketing rules 27. What are the potential penalties for an FCC enforcement action, and where are they set forth? The FCC may: • bring a forfeiture proceeding with a penalty of up to $11,000 (recently increased to take inflation into account) for each violation, or for each day of a continuing violation up to $75,000 for a continuing violation (47 U.S.C. § 503(b)(2)(C)); • bring a cease and desist proceeding (47 U.S.C. § 312(b)); or • seek an injunction (47 U.S.C. § 401). • An individual consumer also may bring a private right of action (47 U.S.C. § 227). 9
  10. 10. OMB review under the Paperwork Reduction Act 28. What is the status of the provisions within the FCC’s Rule that were to become effective upon approval of the Office of Management and Budget (“OMB”)? Pursuant to the Paperwork Reduction Act, OMB has approved all of the information collection provisions11 in the FCC’s rule, except for those associated with the fax advertising requirements. The effective date for all of those provisions was October 1, 2003.12 ### 11 47 C.F.R. § 64.1200(d)(1) (written policy for maintaining a DNC list); (d)(3) (reporting and disclosure of do not call requests); (d)(6) (requirement to maintain for 5 years a record of a caller’s request not to receive telemarketing calls); (f)(3) (records relating to established business relationships); and (g)(1) (notice required of a local exchange service). Also effective on October 1, 2003 are requirements previously approved by OMB: 47 C.F.R. § 64.1200(a)(5), (a)(6) (records concerning abandoned calls); and (c)(2) (individual registration on the national DNC list). 12 68 Federal Register 56,764 (Oct. 1, 2003). 10

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