Do not call: the gathering storm?

On July 29th, 2003, the Federal Trade Commission (FTC) released its final rules regarding the fees to be imposed on entities accessing its Do Not Call (DNC) registry. This is the last piece of a complex puzzle that first began being assembled in November of 1999. Now, some three years and eight months later, this article attempts to provide some insight into how the pieces of the puzzle fit (or in some cases, do not fit) together.

As Confucius said, to understand where we are, we must first understand where we've been. Accordingly, before taking a look at how the state and federal telemarketing regulations interact, this article will first provide a brief tour down memory lane.

Do Not Call: A Brief History

In 1991, The Federal Communications Commission (FCC) was given the right by Congress to take a look at launching a national DNC program, via the Telephone Consumer Protection Act (TCPA). The FCC chose nor to move forward with such a list, opting instead for the company-specific approach (wherein every company responsible for telemarketing calls must honor individual consumer's requests to not be called again). The rules the FCC promulgated in 1992 governed such company-specific lists, as well as faxes and calls made by automatic telephone dialing systems. The FTC's telemarketing regulations (the Telemarketing Sales Rule or TSR) went into effect as of December 31, 1995. Like the FCC, the FTC adopted a company-specific DNC regime, along with a set of extensive regulations governing virtually every aspect of the telemarketing process, including disclosures, prohibitions against misrepresentations, rules regarding the process of making a purchase, and certain rules governing specific types of telemarketing campaigns.

In November of 1999, the FTC began a mandatory review of its TSR rules, which culminated in the release, in January of 2002, of a Notice of Proposed Rulemaking (or NPRM). In this NPRM, the FTC proposed to create a national DNC list, to amend its rules regarding purchase and billing requirements, to add in provisions regarding blocking of caller I.D. and to amend the application of its rules to non-profit calls. The FTC also requested comment on how best to regulate the use of predictive dialers. After an extensive "review and comment" period (which included a public forum), the FTC released its amended TSR in December of 2002.

As many in the telemarketing industry expected, the amended TSR created a national DNC list (managed by the FTC). The FTC also enacted a three percent abandonment rate for calls made by predictive dialers, required the transmission of caller I.D. information by telemarketers, enacted more extensive rules governing purchases and collection of billing information, expanded coverage of the rule to include upsells (sales made after an initial telephonic transaction is completed), and extended coverage of many of the TSR's rules to calls made on behalf of non-profits by for-profit call centers.

At the time of the release of the amended TSR, many questions remained open with regard to the FTC's rules. Most important, the FTC Lacked jurisdiction over many major industries (including common carriers, banks, credit unions, savings and loans, companies engaged in the business of insurance, and airlines); in addition, the FTC lacked jurisdiction over calls made completely within a state (or intrastate calls.) Many of these questions were answered on July 3, 2003, when the FCC released its new rules and regulations implementing the Telephone Consumer Protection Act. Once again, as expected by many in the telemarketing industry, the FCC enacted rules adopting the FTC's DNC list as the official FCC DNC list. In addition, the FCC's promulgated rules mandated a three percent abandonment rate for predictive dialer calls, and required caller I.D. transmission by telemarketers. Finally, the FCC beefed up its existing regulations governing the use of auto-dialers and faxes.

Taking the above developments together with the FTC's recent promulgation of its DNC Fee rules, it would appear that we now have one cohesive set of DNC registry requirements, predictive dialer rules and caller I.D. provisions that govern the vast majority of all commercial telemarketing calls made in the United States. However, as so often occurs when dealing with governmental regulations, the devil is in the details.

FTC/FCC Interaction

Congress tasked the FCC with "maximizing consistency" between its rules and the FTC's amended TSR. Although the FCC accomplished this in large measure by adopting provisions regarding Federal DNC, abandonment and caller I.D., there is still a number of significant differences between these two regulatory schemes.

As mentioned, there are differences between the industries and/or types of calls over which the FTC and the FCC may assert jurisdiction. Any attempt by a telemarketer to determine what rules must be complied with must start with a consideration of these jurisdictional questions. In terms of substantive requirements, perhaps the most striking difference between the FTC's and FCC's rules has to do with calls made by or on behalf of charities. The FTC extended its jurisdiction to cover calls made by for-profit call centers on behalf of charities; most important, these entities must comply with "in-house" requests by consumers. The FCC declined to extend coverage of its rules to non-profits, and continues to completely exempt all non-profit call independent of source.

Another key difference between the two regulatory schemes has to do with abandonment rate rules--the FTC requires record keeping on a "per-day, per-calling campaign" basis, while the FCC only requires record keeping on a 30-day basis. In addition, the FTC considers any call delivering a pre-recorded message to be an "abandoned" call, in that the consumer contacted is not connected with a live sales representative within the mandatory time frame; the FCC does not consider pre-recorded messages delivered either with consent or pursuant to an established business relationship to be "abandoned."

The caller I.D. and company-specific DNC provisions also provide some significant differences that must be taken into account. The FTC's caller I.D. transmission rule is more generic than the FCC's rule--it merely requires telemarketers to transmit certain caller I.D. information without going into specifics as to transmission criteria. The FCC's rule specifically stares a preference for one transmission method of caller I.D. information (calling party number or CPN) over another (automated number identification or ANI), and also expressly prohibits the blocking of caller I.D. information. The FTC rules for company-specific DNC requests state no time limit for either how long until the request must be honored or how long the request itself is honored; the FCC rules are 30 days and five years, respectively.

Finally, there are a number of areas where one agency has a set of rules that are entirely absent from the other agency's rules, including: billing requirements (FTC only), "upsells" (FTC only), and prohibitions against unsolicited advertisements to facsimile machines (FCC only). (For a complete review of the FTC and FCC rules, see side-by-side comparison in Table 1.)

FTC/FCC/States: Preemption 

From the time the FTC first began to look into creating a national DNC program, the preemption question has been front and center for all telemarketers, as well as for stare-level DNC enforcement agencies. Although a free nationwide DNC registry posed significant challenges to the industry many teleservices professionals felt a "one-stop" shop at the national level would help alleviate at least some of the frustrations associated with multiple state-level DNC programs. At the same time, however, the majority of state attorneys general, although supporting the creation of a nationwide registry in concept, made it clear that any such program should not preempt existing state DNC systems. (Note that although the preemption question usually is raised in association with DNC programs, this question applies across the full range of telemarketing regulations developed at the federal level.)

Simmering in the background of the FTC's (and, in turn, the FCC's) efforts was the fundamental issue of the states' ability to assert jurisdiction over interstate calls. Starting with Florida in 1989, all states operating DNC programs had consistently asserted jurisdiction over interstate calls via so-called "long-arm" statutes. Although never successfully tested in court, the ability of states to assert DNC enforcement powers over purely interstate calling was (and is) potentially in conflict with the federal government's exclusive jurisdiction over inter-state commerce. (Conversely, the ability of the federal government to assert jurisdiction over purely intrastate calls can arguably be called into question as well.) It was up to the FTC and the FCC to navigate through these competing, and highly volatile, concerns.

The FTC, handicapped by its highly limited jurisdictional reach, essentially side-stepped the issue of preemption. In its "Statement of Basis and Purpose" for the TSR amendments, the FTC indicated that its DNC registry would not preempt the state programs, but that it would work with the states to create a single DNC registry system with a single set of compliance obligations.

The FCC, with its broader jurisdiction, was nonetheless facing its own preemption hurdles. The TCPA, the FCC's enabling statute for its telemarketing regulations, specifically provides that in most instances, "state law [is] not preempted." In other words, the FCC was not given the authority a to "occupy the field" of DNC law; instead, Congress gave the FCC, at most, the right to promulgate a set of rules that create a regulatory "floor" of protection for consumers. The states are still entirely free to develop their own separate rules; however, as the FCC states, "telemarketers must comply with the federal [DNC] rules even if the state in which they are telemarketing has adopted an otherwise applicable exemption." Accordingly, across the board, whether interstate or intrastate, the FCC has determined that any less restrictive state rules are preempted.

There still remains, however, the question of state regulations that are more restrictive and/or different) than the FCC's rules. Factoring in the wording of the TCPA (which refers only to more restrictive "intrastate" rules developed by states), the FCC concluded: (1) any state rule governing purely intrastate calling that is more restrictive than an FCC rule will not be preempted; and (2) "... any state regulation of interstate telemarketing calls that differs from our rules almost certainly would conflict with and frustrate the federal scheme and almost certainly would be preempted." When it comes to interstate enforcement of state rules, the FCC will consider "any alleged conflicts between state and federal requirements and the need for preemption on a case-by-case basis."

Confused? You're not alone. One thing is clear--the FCC has indicated that states have the ability to develop more restrictive intrastate rules, completely unfettered by federal intervention. On the interstate side, things are a little murkier. Although the FCC clearly states that the same "floor" it has laid down for intrastate calls applies interstate as well, and that more restrictive and/or different interstate rules will "almost certainly" be preempted, it will be up to individual, case-by-case analysis by the FCC to determine what this actually means. The number of potential conflicts between stare and FCC telemarketing regulations is extensive, however, and the ends desired by the FCC (one set of regulations for all interstate calls) may require a correspondingly extensive number of rulings.

How individual states will react to this approach remains to be seen (but see discussion, below); the FCC, however, seemingly leaves the door open for denying states the ability to enforce their telemarketing laws across state lines altogether. The FCC finds that states" traditionally have had jurisdiction only over intrastate calls ..." and only goes so far as to state that interstate enforcement by states via long-arm statutes "may" be protected by the language of the TCPA. One possible implication of the FCC's carefully worded admonition to states to "avoid subjecting telemarketers to inconsistent state rules" is that attempts by states to enforce telemarketing regulations different than the FCC'S across state lines may be met with an FCC determination that states may only enforce their rules intrastate.

Of immediate concern for telemarketers is, what happens now to all of the state DNC exemptions that are in addition to, and/or different than, the FCC's rules? The answer is--to the extent any such rule is less restrictive than the FCC's rules, it has been eliminated. Any such exemption would take a state DNC program below the "floor" established by the FCC, and thus, that exemption is now preempted. Any state exemption in addition to the FCC's exemptions (e.g., face-to-face sales, newspapers or financial institutions) is no longer in force; any state exemption that differs from the FCC rules in a less restrictive manner (e.g., an established business relationship exemption that offers a 24-month window) is similarly unenforceable. States still have the right to enact and enforce laws more restrictive than the FCC'S rules with regard to intrastate calls, but "almost certainly" not for interstate calls. Last, but not least, according to the terms of the TCPA as interpreted by the FCC, all states must include in their DNC databases the part of the federal-level DNC list that relates to that state.

FTC/FCC/States: DNC Programs

With enforcement of the FTC/FCC federal-level DNC set for October 1, 2003, there is still much to be determined with regard to state DNC programs. At the time this article went to print, 38 states had enacted some form of DNC legislation; there are 25 "live" DNC programs up and running right now and 13 that are "pending." In terms of the FTC's plans to work with the states to harmonize their respective DNC programs, only one of the "live" DNC states (New York) has indicated it will discontinue its DNC program in favor of the federal regime. Ten of these "live" DNC states have indicated they will share data to some extent with the federal program (four will share data "two-way," five will incorporate federal data into their state lists and one (Oklahoma) will provide its data to the FTC).

Of the thirteen "pending" state lists, four (Montana, New Jersey, Utah and Mississippi) are going to create separate state DNC programs; one state (Nevada) has given its attorney general authority to review the federal-level list and decide whether to adopt it or create a separate state-run list. The remaining eight states (Arizona, California, Illinois, Michigan, New Hampshire, New Mexico, North Dakota and South Dakota) have opted to simply make use of the federal list.

In the meantime, there appears to be the beginning of a backlash of sorts against the FCC'S preemption plans. Richard Maloney, Connecticut Department of Consumer Protection Director of Trade Practices, has been quoted in several sources indicating that Connecticut will keep its own registry rules intact because the state's rules are stricter, and that both intrastate and interstate calls must adhere to Connecticut's rules. State Senator John Erpenbach, author of Wisconsin's No Call bill, is reportedly urging the Wisconsin attorney general and governor to mount a legal challenge against the FCC's new rules, stating: "I would assume that if we have to go by the FCC rules, Wisconsin would fight to the death on this one." Senator Erpenbach and the Wisconsin attorney general's office are reportedly talking to other states that operate DNC lists to gauge their interest in joining the fight. Nielsen Cochran, the commissioner of the Mississippi Public Service Commission (which launched a state-run DNC list on July 1, 2003), was quoted as saying: "Since ... the FCC exerted its authority to join the FTC on [a national DNC list], we've been doing nothing bur trying to figure out what it means to existing states that are implementing our own no-calls lists. And I still don't know" Adding in prior pronouncements of state attorneys general on this topic, it would appear that this will be a recurring issue for the FCC over the coming months.

The Future: Whither Telemarketing?

Any entity that either directly engages in telemarketing or outsources calling to third party call centers must immediately address the question of how to apply all of the new federal rules to its calling campaigns. Every element of the FTC and FCC rules has a corresponding record-keeping requirement; should an entity be investigated, it will have to produce records of sufficient detail to establish that it is in compliance with the rules (and, as necessary, to maneuver within safe harbor provisions).

Another immediate concern is determining the method by which the seller/telemarketer will be accessing the federal DNC list and, more important, how it will achieve compliance with it. Under the FTC's DNC fee rules, "sellers" must register and pay $25 per area code per year (the first five are free, however.) This fee is capped at $7,375 per year. The FTC requires separate divisions, subsidiaries or affiliates of the seller to pay a separate annual fee when: (1) the entity is separately incorporated or, for a non-corporate entity such as a partnership, is a similarly distinct legal entity; and (2) the entity has or markets under a different name.

Telemarketers and/or service providers hired by sellers may access the list information for free by making use of the unique account number of the seller on whose behalf they are providing services (such entities may also independently and voluntarily access the information on their own, paying the appropriate fees). All entities accessing the list must provide certifications regarding use of the list in conformance with the FTC's regulations; telemarketers and/or service providers, when accessing list via seller-client(s) account number(s), must provide these account numbers, and also identify each seller-client, to the FTC.

Given this framework, it is now up to sellers, telemarketers and third-party vendors to determine the policies and procedures to be used in accessing this information, and in certifying to the FTC that these policies and procedures are in fact in compliance with the FTC's regulations, Since information is provided to individual sellers by area code, telemarketers and third-party vendors will need to track the area codes purchased by their seller clients to ensure that sellers are not inadvertently given access to area codes not specifically purchased. The new federal DNC fee rules should also require some changes to existing contractual language between the various parties involved.

Of even greater importance is the question of how to assure that DNC numbers are not being called. Across the teleservices industry, many experts are realizing that traditional database "scrubbing" techniques, although sufficient for performance management and efficiency purposes, are ill-suited to handle the harsh realities of risk-management for purposes of DNC compliance. As the risks associated with DNC liability increase, teleservices professionals will increasingly turn their attention to "blocking" technologies, which offer greater centralization opportunities and the highest level of DNC compliance technologically possible.

Although the new FTC and FCC enactments have answered a number of questions, many in the teleservices industry feel that many more questions have been raised. Given the FCC's stance on preemption, is the process of integrating state and federal DNC and related regulations now underway, or has the FCC in essence issued an invitation to states to become more creative in promulgating ever more restrictive telemarketing regulations? Virtually every element of telemarketing law, from DNC exemptions to registration/bonding requirements to disclosures and billing rules, is open for further restrictions; to the extent these rules are more restrictive than federal rules, the FCC has indicated that (at least for intrastate calls) these rules can be enforced by the states. An additional question was raised by the FCC's seeming unwillingness to concede that states have the right to enforce telemarketing regulations across state lines. Should the FCC make this determination, uniformity of these rules will be that much easier to attain; however, this would certainly be met with vigorous opposition from the states.

When it conies to DNC rules and "harmonization" of federal and state rules, it is an open question as to the extent to which states will participate with the federal program. Both the FTC and the FCC foresee an 18-month transition period. To be sure, the more recent the DNC legislation, the greater the likelihood that the state in question simply opts for using the federal-level list. However, since the time the FTC announced its amended TSR at the end of 2002, the number of state-run DNC programs (either implemented or planned) has actually increased from 25 to 28. For those in the teleservices industry who saw in a federal-level list the prospect of one-stop shopping for DNC data, this number is clearly moving in the wrong direction.

Finally, there is the "wildcard" presented by the challenges filed by the American Teleservices Association (ATA) against both the FTC and the FCC rules. Many industry experts point to a number of excellent arguments raised by the ATA concerning overreaching by the FTC and the FCC, as well as a long line of supportive commercial free speech cases. Still others raise the hurdles presented by recent decisions at the federal and state levels regarding the constitutionality of the TCPA's facsimile rules, as well as the sheer popularity of the DNC rules. Although prediction of an outcome here would be merely conjecture, the ATA's $2 million war chest speaks volumes about the desire and will of the teleservices industry to protect its interests.

                FTC                           FCC
Jurisdiction    * no coverage of              * intrastate calls
                intrastate calls

                * interstate calls            * interstate calls
                (unless otherwise
                exempted--see below)

                * no coverage of common       * All industries
                carriers, banks, credit       (insurance on "case
                unions, savings and           by case" basis)
                in the companies
                engaged in the business
                of insurance, and
                airlines

                * inbound and                 * only outbound calls
                outbound calls

Rules Re:       * TSR extends many of         * non-profits
Charities       its rules to calls            (including calls made
                made by for-profit            on their from all
                entities on behalf            completely exempt from
                of non-profits                all rules

DNC Registry    * FTC administers the         * as per FTC rules
                federal list (the list
                is actually maintained
                by AT&T Government
                Solutions)

                * 5 year registration         * as per FTC rules

                * accessible on ongoing       * as per FTC rules
                basis to telemarketers

DNC registry    * express consent             * express consent
exemptions
                * established business        * established business
                relationship (18 month        relationship (18 month
                "transaction" based;          "transaction" based; 3
                three month "inquiry"         month "inquiry" based)
                based)

                * calls by or on behalf       * calls by or
                of non-profits                on behalf of
                                              non-profits

                * definition/jurisdiction     * definition/jurisdiction
                based exemptions              based exemptions

                * no comparable provision     * "personal
                                              relationship"
                                              calls

DNC Registry    * $29/area code               * as per FTC rules
Fees
                * $7,350 "cap"                * as per FTC rules

                * "Sellers" must purchase     * as per FTC rules

                * Telemarketers/third-party   * as per FTC rules
                vendors may purchase or use
                seller's account number(s)

Preemption of   * no preemption               * less restrictive
State DNC                                     intrastate rules
Programs                                      preempted

                * no preemption               * more restrictive
                                              intrastate rules not
                                              preempted

                * no preemption               * less restrictive
                                              interstate rules
                                              preempted

                * no preemption               * more
                                              restrictive/different
                                              interstate rules
                                              "almost certainly"
                                              preempted

                * no comparable provision     * states must include
                                              federal-level DNC list
                                              information in their
                                              DNC lists

Predictive      * 3% abandonment rate         * 3% abandonment rate
Dialer Rules
                * 4 ring/15 second            * 4 ring/15 second
                connect rule                  connect rule

                * pre-recorded message        * pre-recorded message
                consisting of name and        consisting of name,
                telephone number must         telephone number and
                be delivered for all          that call is for
                abandoned calls               "telemarketing
                                              purposes" must be
                                              delivered for
                                              all abandoned calls

                * Abandonment rate            * 30-day abandonment
                measured per day per          rate measurement
                calling campaign              period

                * any interstate call         * "legal" pre-recorded
                answered by a consumer        calls (with consent or
                delivering a pre-recorded     with existing business
                message considered de         relationship) not
                facto abandoned under TSR     considered "abandoned"

                * no comparable provision     * predictive
                                              dialer = "automatic
                                              telephone dealing
                                              system"

Caller ID          * telemarketers must       * telemarketers must
                   transmit number (no        transmit number (via CPN
                   specifics)                 or ANI; CPN preferred)

                   * telemarketers must       * telemarketers must
                   transmit name (when        transmit name (when made
                   made available by          available by carrier)
                   carrier)

                   * substitution of          * substitution of
                   ultimate seller's          ultimate seller's
                   info allowed               info allowed

                   * no comparable            * blocking specifically
                   provision                  prohibited

                   * number transmitted       * telemarketer number
                   must permit consumer       transmitted must be one
                   to make a DNC              that allows consumers
                   request during             to identify the caller;
                   regular business           if ultimate seller
                   hours                      number substituted, it
                                              must be answered during
                                              normal business hours

Autodialer/        * blanket prohibitions     * existing rules re:
pre-recorded       against abandoning ANY     autodialers extended
message rules      outbound call (see         to include calls made
                   predictive dialer          by predictive dialers
                   rules, above)              (i.e., no autodial calls
                                              to emergency numbers,
                                              hospitals, or cell
                                              phone/wireless services)

                   * no comparable            * extensive rules re:
                   provisions                 delivery of pre-recorded
                                              or artificial voice
                                              messages

Identification     * following info           * following info must be
Disclosures        must be disclosed          disclosed at some point
                   promptly:                  during the call:

                   * no comparable            * name of individual
                   provision                  caller

                   * identity of the          * name of person/entity
                   seller                     on whose behalf call
                                              is made

                   * no comparable            * telephone number or
                   provision                  address at which
                                              person/entity may
                                              be contacted

                   * purpose of the           * no comparable provision
                   call is to sell
                   goods/ services

                   * nature of goods or       * no comparable provision
                   services being offered

                   * prize promotion          * no comparable provision
                   disclosures

Billing            * extensive regulations    * no comparable
                   governing all phone        provisions
                   transactions; additional
                   regulations for "demand
                   draft" and "pre-acquired
                   account" transactions

Company-specific   * requests not to be       * requests not to be
DNC rules          called must be honored     called must be honored

                   * no time frame for how    * requests must be
                   long a request must be     honored for a period
                   honored                    of 5 years

                   * no time frame for how    * requests must be
                   long until a request is    honored within 30 days
                   honored                    from date of request

                   * for-profit entities      * calls made by or on
                   making calls on behalf     behalf of non-profits
                   of non-profits must        completely exempt
                   honor in-house DNC
                   requests

"Upsells"          * newly defined term in    * no comparable
                   TSR; many provisions of    provisions
                   TSR apply to attempts
                   to make a sale after
                   an initial transaction
                   over the phone

Faxes              * no comparable            * extensive rules re:
                   provisions                 delivery of unsolicited
                                              advertisements to fax
                                              machines

For additional information and discussions about federal telemarketing legislation, visit forums.tmcnet.com.

Joseph Sanscrainte is director of regulatory affairs and general counsel with Call Compliance, Inc. of Glen Cove, NY, which offers its patented TeleBlock Do Not Call blocking service and online state/federal regulatory guide to the teleservices industry. He is regularly sought out as a speaker on compliance issues and serves on the American Teleservices Association (ATA) Education Committee, the American Resort Development Association's state legislative and technology sub-committees and the Direct Marketing Association's (DMA) teleservices council He is a graduate of Georgetown Law School.