Telemarketing Law

FTC Settles with Service Provider over Robocall Violations

May 14, 2013 by David Klein

Robocalls

Robocalls are telephone calls that use both a computerized auto-dialer and a computer-delivered pre-recorded message. Robocalls tend to receive a heightened level of scrutiny under various state and federal telemarketing laws – and that scrutiny is expected to increase when new Telephone Consumer Protection Act (“TCPA”) rules take effect on October 16, 2013.

Regulatory Action

As part of its increased focus on robocalling, the Federal Trade Commission (“FTC”) brought charges against Skyy Consulting, Inc. (doing business as CallFire) alleging violations of the FTC’s Amended Telemarketing Sales Rule (“ATSR”). CallFire provides voice-over-Internet (VOIP) voice broadcasting services to its clients, which involve computer delivered messages broadcast to many consumers simultaneously.

The FTC alleged that CallFire assisted its clients in broadcasting pre-recorded calls to consumers without their prior written consent in violation of the ATSR and that CallFire “either knew, or consciously avoided knowing, that their clients were violating the [ATSR].” CallFire and the FTC reached a settlement that:

…bars [CallFire] from initiating illegal robocalls or otherwise violating the [ATSR]…requires CallFire to review all pre-recorded messages it delivers and terminate its contracts with any clients who are found to be delivering illegal pre-recorded telemarketing calls. In addition, within 120 days, CallFire must review all existing pre-recorded messages hosted on its platform to ensure [CallFire is] complying with the [ATSR].

How to Protect Your Business

As the CallFire case makes clear, entities that fail to comply with state and federal telemarketing requirements may find themselves facing regulatory action from the FTC and/or state regulatory bodies, as well as consumer class action litigation.

If you are interested in learning more about this topic or need to review your telemarketing practices, please e-mail us at info@kleinmoynihan.com, or call us at (212) 246-0900.

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FTC Settles Case Against Prepaid Phone Cards

May 6, 2013 by David Klein

A case the Federal Trade Commission (“FTC”) has been investigating for more than two (2) years was settled last month. For several years, the FTC received numerous complaints that prepaid phone cards sold by DR Phone Communications, Inc., also doing business as drphonecom.com (“DR Phone”), contained far fewer long distance phone minutes than were advertised. Upon investigating the calling cards, which are primarily consumed and marketed to recent immigrants to the U.S., the FTC found that the cards delivered only forty percent (40%) of the minutes promised, with some delivering less than five percent (5%) of the minutes advertised.

Authority to Regulate Unfair and Deceptive Business Practices

While the Federal Communications Commission (“FCC”) has jurisdiction over the telecommunications industry generally, the FTC is tasked with regulating the marketing aspects associated with telecommunications-related products and services. As detailed in a previous post, the FTC is an independent agency established in 1914 to, among other things, protect consumers from unfair and deceptive business practices, especially focusing on advertising, marketing, telemarketing fraud and privacy/identity protection. Under the FTC Act, a business and/or individual will be found to have engaged in an unfair business practice if the practice is found to be unethical and injures consumers, in violation of established public policy. Likewise, a business and/or individual will be found to have engaged in deceptive business practices if it made a material representation/omission or engaged in an activity that is likely to deceive reasonable consumers. The FTC has stated that a “material” representation, omission or practice is one that affects the consumer’s behavior.

Application of the FTC Act to DR Phone

In a complaint filed on May 22, 2012, the FTC alleged that DR Phone violated the FTC Act by misrepresenting the number of calling minutes available on the defendant’s prepaid calling cards and for failing to adequately disclose the fees that reduce the number of calling minutes contained on the pre-paid calling cards. Specifically, the FTC alleged that DR Phone failed to properly inform consumers that the advertised calling minutes were available only if used on a single call, that there were limits on the time of day in which the advertised rates were available and that the calling cards were subject to expiration and blackout dates.

DR Phone’s Settlement Terms and Penalties

On April 24, 2013, a consent order was entered in the U.S. District Court for the Northern District of California, in which DR Phone agreed to implement strict procedures to ensure that all of its marketing material is accurate and up-to-date. Additionally, DR Phone agreed to clearly and conspicuously disclose all material terms and fees associated with its prepaid phone cards. Finally, DR Phone agreed to pay a monetary judgment of $61,597.00 as disgorgement of all proceeds derived from the alleged FTC Act violations.

This topic should be of interest to anyone engaging in a commercial venture within the United States, especially those involved in the marketing and advertising of prepaid calling cards and/or telemarketing services generally.

If you would like to ensure that you are compliant with current FTC regulations, or if you are facing class action litigation or regulatory action, please e-mail us at info@kleinmoynihan.com, or call us at (212) 246-0900.

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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FTC Secures Huge Telemarketing Judgment

April 24, 2013 by David Klein

The U.S. District Court for the Eastern District of Pennsylvania recently entered a judgment against a telemarketing corporation, NHS Systems, Inc., and five principals, for violating the Federal Trade Commission (FTC) Act and associated enforcement regulations, laid out in the FTC’s Telemarketing Sales Rule (TSR). The defendants were accused of operating a telemarketing campaign, in which they misrepresented themselves as governmental entities and required consumers to sign up and pay for healthcare programs in exchange for the promise of future tax rebates or other monetary benefits. In addition to there not being any tax rebates or other benefits associated with the programs, the FTC alleged that the defendants withdrew funds from consumers’ accounts without their approval or any notice thereof.

Court Findings

According to the opinion of the court, the defendants violated § 5(a) of the FTC Act and several TSR regulations by:

expressly claiming or representing that they were calling on behalf of federal agencies, which was false and a material misrepresentation;
unjustifiably offering government grants and refunds, which was false and a material misrepresentation;
assuring consumers that they would not be charged or the charges would be offset by deposits into their accounts, which was materially false;
underrepresenting the cost of joining and maintaining their discount healthcare program; and
charging consumers for the program without notice or authorization.

Court Awards Permanent Injunctive and Monetary Relief

As a result of its findings, the court ordered that the defendants be enjoined from: 1) participating in any future telemarking campaigns; 2) using the billing information collected from consumers in any way contrary to the order; and 3) making, expressly or by implication, any representation that is false or misleading to consumers. Additionally, the court ordered the disgorgement of all proceeds derived from the alleged TSR violations, in the amount of $6,879,162.22. All of the named defendants were held jointly and severally liable for the monetary penalty designated by the court, which was ordered to be paid in full within 10 business days from the date of the court’s order.

The complaint against NHS Systems is part of a larger trend of regulatory action within the telemarketing space and is not limited to the FTC. The Federal Communications Commission (FCC) has similar telemarketing regulations codified in its Telephone Consumer Protection Act (TCPA), which we have previously discussed in this blog. In light of this action, and the general regulatory trend (on a state and federal level), telemarketers should review their marketing practices (and those of their respective affiliates) to ensure compliance with FTC, FCC and state telemarketing regulations. Entities that fail to comply with applicable regulations may find themselves facing investigation and possible injunctive and monetary penalties.

If you are interested in learning more about this topic or need to review your telemarketing practices, please e-mail us at info@kleinmoynihan.com, or call us at (212) 246-0900.

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New TCPA Rules Effective October 16, 2013

March 26, 2013 by David Klein

Will Your Marketing Campaign Be the Target of a Class Action Lawsuit or Regulatory Investigation for Failure to Comply With Recent Revisions to the Telephone Consumer Protection Act?

What is the Telephone Consumer Protection Act (“TCPA”)?

The TCPA[1] was passed into law in 1991. The Federal Communications Commission (“FCC”) is empowered to issue rules and regulations implementing the TCPA. Among other things, the TCPA allows individuals to file lawsuits and collect damages for receiving unsolicited telemarketing calls, faxes, pre-recorded calls or autodialed calls.

What is a Telemarketing Call?

“Telemarketing” calls include those made by advertisers[2] that offer or market products/services to consumers. Purely informational calls and calls for non-commercial purposes are exempt from the FCC’s regulations.

What is an Autodialed Call?

An autodialed call is a phone call, involving a live person or pre-recorded message, that is placed using an “autodialer,” or automatic telephone dialing system, that can produce, store and call telephone numbers using a random or sequential number generator.[3] The autodialed call definition should be broadly construed in an effort to avoid unwanted litigation and regulatory action. For instance, if you are utilizing any type of call center software as part of your telemarketing operations, you may be using an autodialer within the FCC’s definition. If you are unsure, we recommend that you consult with an attorney who has expertise in telemarketing law.

What is a Robocall?

A robocall is a phone call that uses an “autodialer” system to deliver a pre-recorded telemarketing message.

Are SMS text messages to cell phones considered “calls” under the TCPA?

Yes. The TCPA applies to both voice and short message service (SMS) text messages, if they are transmitted for marketing purposes. The TCPA has been interpreted in recent years to prohibit the sending of unsolicited commercial text messages to cell phones – with limited exceptions (i.e., messages sent for emergency purposes).

What are the new TCPA Rules?

In a Report and Order approved on February 15, 2012, the FCC adopted additional protections for consumers concerning unwanted autodialed and/or robocalls. The changes to the TCPA are as follows:[4]

New Rule	Effective	What is the new requirement?
Prior express written consent	October 16, 2013	Unambiguous written consent required before telemarketing call or text message. *Exception*: calls that are manually dialed and do not contain a pre-recorded message are exempt from the TCPA.
No “established business relationship” exemption	October 16, 2013	Established business relationship no longer relieves advertisers of prior unambiguous written consent requirement.

1) Beginning October 16, 2013, prior express written consent will be required for all autodialed and/or pre-recorded calls/texts sent/made to cell phones and pre-recorded calls made to residential land lines for marketing purposes.

Compliance with the E-SIGN Act satisfies this requirement, meaning that electronic or digital forms of signature are acceptable (i.e., agreements obtained via email, website form, text message, telephone keypress or voice recording).

Consumer consent must be unambiguous, meaning that the consumer must receive a “clear and conspicuous disclosure” that he/she will receive future calls that deliver autodialed and/or pre-recorded telemarketing messages on behalf of a specific advertiser; that his/her consent is not a condition of purchase; and he/she must designate a phone number at which to be reached (which should not be pre-populated by the advertiser in an online form). Limited exceptions apply to this requirement, such as calls/texts from the consumer’s cellular carrier, debt collectors, schools, informational notices and healthcare-related calls.

If a dispute concerning consent arises, the advertiser bears the burden of proof to demonstrate that a clear and conspicuous disclosure was provided and that the consumer unambiguously consented to receive telemarketing calls to the number he/she specifically provided. It is a best practice for advertisers to maintain each consumer’s written consent for at least four (4) years, which is the federal statute of limitations to bring an action under the TCPA. Evidence of Internet-provided written consent includes, but is not limited to, website pages that contain consumer consent language and fields, associated screenshot of the consent webpage as seen by the consumer where the phone number was inputted, complete data record submitted by the consumer (with time and date stamp), together with the applicable consumer IP address.

2) Beginning October 16, 2013, the “established business relationship” exemption for pre-recorded telemarketing calls to residential landlines will be eliminated.

In the past, advertisers could rely on an established business relationship (such as a previous purchase) to circumvent the need to obtain a consumer’s written consent to receive telemarketing calls. That exception to the consent requirement will no longer exist after this year. Advertisers will have to obtain written consumer consent, outlined above, even if they previously had a business relationship with the consumer.

What are the penalties for failing to comply with the TCPA?

The TCPA provides for either actual damages or statutory damages ranging from $500.00 to $1,500.00 per unsolicited call/message. In determining the final amount of statutory damages to award, courts analyze whether the defendant “willfully” or “knowingly” violated the TCPA. Considering that telemarketing campaigns often involve thousands to, in some cases, millions, of calls/text messages, potential damages under the TCPA may escalate very quickly.

Sample Website

Consent Language

I hereby consent to receive autodialed and/or pre-recorded telemarketing calls from or on behalf of [ADVERTISER] at the telephone number provided above.[5] I understand that consent is not a condition of purchase.

If you are in need of legal advice/assistance in connection with a prospective marketing campaign, we would be happy to speak with you.

Please contact David O. Klein at 212.246.0900 or via e-mail at dklein@kleinmoynihan.com.

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each marketing situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced telemarketing attorney.

[1] 47 U.S.C. §§ 227 et seq.

[2] For simplicity, the term “advertisers”, as contained herein, include sellers and those telemarketing companies that market sellers’ goods/services.

[3] 47 U.S.C. § 227(a)(1).

[4] Please note that two new TCPA regulations have already gone into effect: 1) interactive opt-out mechanisms must be announced at the outset of the message and be available throughout the duration of the call; and 2) advertisers must keep records of “abandoned calls” and average no more than 3% for each campaign over a 30-day period.

[5] The checkbox and phone number should not be pre-populated and the consumer’s phone number should appear on the same page as the consent.

Are You Keeping Up with FTC Regulations?

March 22, 2013 by David Klein

To complement our recent post regarding attorney general proceedings, we felt it would be helpful to our readers if we commented on another regulating body that affects the marketing and advertising spaces: the Federal Trade Commission (FTC).

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An Overview of the FTC

The FTC is an independent agency established in 1914 to, among other things, protect consumers from unfair or deceptive business practices, especially focusing on advertising and marketing, telemarketing fraud, and privacy/identity protection. A business and/or individual will be found to be engaging in an unfair business practice if the practice is found to be unethical and injures consumers, in violation of established public policy. Likewise, a business and/or individual will be found to be engaging in deceptive business practices if it makes a material representation/omission or engages in an activity that is likely to deceive reasonable consumers. The FTC has stated that a “material” representation, omission, or practice is one that affects the consumer’s behavior.

FTC Investigations and Lawsuits

There are several ways that a business and/ or individual can become the target of an FTC investigation or lawsuit. The most common of these are complaints from consumers, congressional inquiries, or reports from the media. For obvious reasons, the best practice for businesses and individuals should be to retain experienced counsel to monitor their compliance with FTC regulations, before an FTC investigation or lawsuit is instituted. A compliance attorney will also be very useful in setting practice policies, which will preemptively protect the person or business should an FTC investigation or lawsuit arise.

Recent FTC Case

A recent FTC case illustrates the above points. On Friday, Equifax, one of the largest U.S. consumer reporting agencies, agreed to pay $392,803 as a settlement for violating the Fair Credit Reporting Act (FCRA) and the FTC Act. The violations stemmed from Equifax’s alleged failure to monitor FTC regulations and properly screen third parties who requested private consumer information. As a result, sensitive information regarding millions of consumers was sold to unqualified third parties in violation of the FCRA. The settlement amount paid by Equifax equaled the gross revenue gained from the wrongful sale of consumer information. Additionally, the FTC found Equifax’s actions to be an unfair business practice in violation of the FTC Act. As a result, Equifax agreed to comply with a consent order issued by the FTC, requiring Equifax to maintain higher screening and compliance procedures. You should note that no finding of bad intent was necessary; this was simply a matter of a company failing to monitor and comply with FTC regulations.

This topic should be of interest to any company or individual engaging in a commercial venture within the United States, especially those involved in the marketing, data collection and/or consumer product industries.

If you are interested in ensuring that you are compliant with current regulations or if you are facing an investigation from the FTC or other regulatory agency, please e-mail us at info@kleinmoynihan.com, or call us at (212) 246-0900.

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The FTC and State Attorneys General Cracking Down

March 15, 2013 by David Klein

In the regulatory arena, 2013 has already been a rocky year for many industries, with the Federal Trade Commission (FTC) and various state Attorneys General aggressively investigating companies for allegedly engaging in unfair and deceptive business practices. Unsolicited text message campaigns, electronic cigarettes, online lending, payment processing, supplements/pharmaceuticals, data collection relating to online dating and credit reports, and telemarketing issues are directly under the microscope.

A case in point occurred yesterday when Automated Electronic Checking Inc. (AEC), a payment processor, and its owners were banned from engaging in payment processing or similar industries and will also pay close to $1 million to the FTC as part of a settlement. The settlement comes after the FTC alleged that AEC knew, or should have known, that the merchants for whom it was processing payments had obtained consumers’ financial information through unfair and deceptive business practices. In working as a middleman between merchants and consumers, AEC made millions of dollars charging small processing fees per transaction. It appears that AEC was unaware that it could be held liable for the transactions of the merchants, for whom it provided payment processing.

The best way to avoid an FTC or state Attorney General investigation is to consult with an experienced attorney to monitor your compliance with ever-evolving FTC and state regulations. If you find yourself being investigated by the FTC or an Attorney General it is imperative that you retain counsel that has extensive experience handling investigations and actions brought by the FTC and/or state Attorneys General. Also, it is critical that you retain counsel familiar with each individual state law because the commencement of an FTC or an Attorney General investigation, can often lead other state Attorneys General to join the investigation or commence their own.

This blog should be of interest to any company or individual engaging in a commercial venture within the United States, especially those involved in the marketing, data collection and/or online lending/processing industries.

If you are interested in ensuring that you are compliant with current regulations or are facing investigation from the FTC or a state Attorney General, please e-mail us at info@kleinmoynihan.com, or call us at (212) 246-0900.

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Federal Court’s Certification of TCPA Class for Alleged Text Message Spam May Result in Numerous Copycat Class Actions

February 26, 2013 by David Klein

The Telephone Consumer Protection Act, 42 U.S.C. §§ 227 et seq. (“TCPA”) provides for, inter alia, statutory damages to individuals who receive unsolicited telemarketing calls, unsolicited faxes, prerecorded calls or autodialed calls. The TCPA has been interpreted in recent years to also prohibit the sending of unsolicited text messages to personal cell phones – unless the message is sent for emergency purposes or the recipient has given his or her express consent to receive such messages.

The TCPA provides for either actual damages or statutory damages ranging from $500 to $1,500 per unsolicited message. In deciding whether to treble the statutory damages, courts analyze whether the defendant “willfully” or “knowingly” violated the TCPA. Considering that text message marketing campaigns often yield thousands to, in some cases, millions, of text messages, potential damages under the TCPA may escalate very quickly.

In the TCPA class action captioned Lee v. Stonebridge Life Insurance Company, Case No. 11-CV-00043, the Northern District of California recently certified a class of individuals who received text messages from a specific telephone number during a five day period in late 2010. The plaintiff asserted that she received an unsolicited text message to her mobile phone directing her to call a specific telephone number to claim a reward (a Walmart gift card). The defendants in the action are a life insurance company (“Stonebridge”) and its third party marketing contractor that provided lists of potential customer telephone numbers. The marketer then contracted out to numerous third parties to generate the actual text messages allegedly sent to class members.

In its opposition to plaintiff’s motion for class certification, Stonebridge argued that there were numerous issues that should preclude class certification because there was no evidence whatsoever that: (a) Stonebridge sent the actual text messages; (b) the text messages were specifically sent by the co-defendant marketer on Stonebridge’s behalf; (c) an automatic telephone dialing machine was used to send the text messages; or (d) all class members even received the subject text messages. In its February 12, 2013 Order, the Court held that the issues raised by Stonebridge go to the merits of the action and that, while the plaintiff may face numerous substantive hurdles in ultimately establishing liability against the defendants at trial, the defendants nonetheless were unable to point to any question of law or fact to preclude certification of the class.

Further, in what was a tremendous win for plaintiff and class counsel, Edelson McGuire LLP, the Court held that the plaintiff satisfied the statutory requirements for class certification. These requirements – which are given a “rigorous analysis” by courts pursuant to statute – permit a class action to proceed only where: (i) the class members are so numerous that joinder is impracticable; (ii) common questions of law or fact exist; (iii) the claims or defenses of the representative parties are typical of the class; and (iv) the representative parties will fairly and adequately protect the interests of the class. (Federal Rule of Civil Procedure, 23(a).)

The Northern District of California’s class certification in this action undoubtedly will inspire other potential class action plaintiffs, resulting in the commencement of similar class actions nationwide (or the push to settle pending TCPA class action lawsuits).

We have successfully defended – and are currently defending – TCPA class action lawsuits throughout the country. If you require any assistance, please e-mail us at newsletter@kleinmoynihan.com, or call us at (212) 246-0900.

The information contained herein should not be construed to be formal legal advice or the formation of a lawyer/client relationship.

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FTC Settles with Telemarketer over Robocalling Violations

February 19, 2013 by David Klein

Robocalls – or, telephone calls that use both a computerized autodialer and a computer-delivered pre-recorded message – receive a heightened level of scrutiny under various state and federal telemarketing laws. As part of the increased regulatory focus on robocalls, the FTC brought charges against Roy M. Cox, Jr. and several related companies, alleging violations of the FTC’s Amended Telemarketing Sales Rule (“ATSR”).

In response, Cox and the FTC reached a settlement that will require Cox to pay $1,100,000 for the alleged ATSR violations, and for Cox to be banned, for life, from partaking in any future telemarketing activity.

Among the alleged violations, the FTC charged that Cox and the related entities, “illegally [failed] to transmit their name or their clients’ names on consumers’ caller ID displays when making their telemarketing calls, [used] generic names instead, such as “CARD SERVICES,” “CREDIT SERVICES,” or “PRIVATE OFFICE” … called phone numbers on the National Do Not Call Registry, and made pre-recorded sales calls to consumers without their written consent.”

As the Cox case makes clear, entities that fail to comply with state and federal telemarketing and/or robocall requirements could find themselves facing regulatory action from the FTC, or state regulatory bodies.

If you are interested in learning more about this topic or need to review your telemarketing practices, please contact us at your convenience.

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