Industry Challenges National DNC List, Other TSR Changes, as Enactment Deadline Looms

Industry Challenges National DNC List, Other TSR Changes, as Enactment Deadline Looms

Byline: Marybeth Luczak

The Federal Trade Commission is another step closer to making its national do-not-call registry a reality – just one of the agency’s Telemarketing Sales Rule amendments, which also include tougher requirements for advance consent marketing, a 3-percent abandonment rate for predictive dialers and mandatory transmission of caller-ID information (February, page 11).

In late February, President Bush signed the Omnibus appropriations bill into law, authorizing the FTC to collect $18.1 million in offsetting fees for the list’s establishment, among other provisions. Shortly thereafter, the FTC awarded an initial $3.5 million contract to Ashburn, VA-based AT&T Government Solutions to develop and implement the list. (The contract expires in September, but can be extended for up to nine years.)

As many as 60 million consumers are expected to sign up for the list via telephone or Internet, starting in July or August. According to FTC spokeswoman Cathy MacFarlane, the roll-out will be conducted on a regional basis first, giving consumers residing in each of eight sections of the country approximately one week to add their phone numbers at no cost. (Subsequently, consumers nationwide may sign up for free, at their convenience.)

Some state DNC lists may also be incorporated into the national list this summer to make complying with a myriad of lists easier for telemarketers. (The FTC rules do not preempt state DNC legislation.) MacFarlane says that the agency is in talks with the 27 states with DNC lists, and 17 could most easily harmonize their lists with the national registry. “Harmonization will occur on a state-by-state basis,” MacFarlane stresses. “It will be up to our vendor to determine how and when to add each one.”

In September, telemarketers will be required to merge/purge their outbound call lists against the national registry, although the cost to do so hasn’t been determined. MacFarlane anticipates that a fee structure will be in place by late spring. (FTC Chair-man Timothy Muris has stated that telemarketers will pay less than $10,139 in annual fees – the price tag of compliance with every state list.)

The FTC has been authorized to collect such fees for only one year, however. “Additional legislation will be necessary to give us the ability to continue collecting fees,” says MacFarlane. The House Energy and Commerce Committee passed a bill in late January which: permits the FTC to charge marketers fees to fund the registry from 2003 to 2007; requires the FTC to provide a review of the program two years after the bill is signed into law; obligates the Federal Communications Commission to issue a final rule regarding the establishment of its own national DNC registry within 180 days of the bill’s passage; and mandates that the FTC and the FCC send a report to the Committee analyzing the DNC rules that each agency establishes, among other provisions. In February, the full House passed the bill and the Senate followed suit. But at press time, the President hadn’t signed the legislation into law. MacFarlane expects his signature within a year.

LEGAL CHALLENGES UNDER WAY

Despite swift progress on its TSR amendments, the FTC may be in for a legal battle due to mounting industry opposition. At the end of January, the Direct Marketing Association and the American Teleservices Association teamed up with a number of telemarketing firms to file separate lawsuits against the FTC for its changes to the TSR.

“We’re challenging the FTC’s fundamental, statutory authority as well as First Amendment deficiency,” summed up Matt Mattingley, ATA’s director of government affairs, at press time. “We think our case has merit and that the courts will agree.”

The ATA and two telemarketing outfits – Boulder, CO-based Main-stream Marketing Services, Inc. and Denver, CO-based TMG Marketing, Inc. – filed suit in the U.S. District Court for the District of Colorado, charging that the FTC’s actions “violate the First and Fifth Amendments to the U.S. Constitution, exceed the bounds of the FTC’s statutory authority, and are arbitrary and capricious under the Administrative Procedure Act.” In addition, the cooperative filed a “petition for review” of the FTC’s final ruling in the U.S. Court of Appeals for the Tenth Circuit.

“We chose to file suit against the FTC in Colorado with two companies who we thought exemplified current, state-of-the-art telemarketing and could demonstrate the harm that would be realized by industry if the FTC’s provisions are allowed to take effect,” explained Mattingley. “We also chose this venue because [DNC legislation] is a familiar issue. A coalition of Colorado businessmen recently brought suit against the state attorney general for enacting Colorado’s do-not-call program last summer.” Due to this familiarity, the District Court was considering, at press time, whether or not the state and federal lawsuits should be combined. “We have pointed out that while the issues are similar, there are substantial differences in law,” Mattingley said. “We presume that the state suit will go on in its own right and our federal suit will go on separately. But nothing will happen until the court makes a determination. We hope that a hearing schedule will be set fairly shortly.”

The DMA and four telemarketers – including Oklahoma, OK-based U.S. Security; Arlington Heights, IL-based Chartered Benefit Services Inc.; Mount Hope, W.VA-based Global Contact Services; and Akron, OH-based Info-Cision Management Corp. – filed a lawsuit in the U.S. District Court in Oklahoma City. They claim that the FTC “exceeded its authority” in the creation a national DNC list because “Congress vested such authority in the FCC”; in the establishment of call-abandonment requirements because they are based on equipment use “subject to the exclusive jurisdiction of the FCC”; and in the restricted use of preacquired account information “under both the Telemarketing Abuse Act and section 5 of the Federal Trade Commission Act.” The suit also charges that the national DNC registry would “violate First Amendment rights” to advertise freely, and that the FTC is opening the door to potential bureaucratic duplication since the FCC is now considering the formation of its own national DNC list. (Public comments were due to the FCC January 31.)

The FTC’s MacFarlane declined comment on the ATA’s and DMA’s suits, on ground that it is inappropriate for the FTC to comment on any pending litigation.

The clock is ticking now that the FTC’s 60-day grace period before mandatory compliance to most TSR changes expires March 31. The FTC’s DNC registry and caller-ID transmission requirements were the only exceptions when the changes were announced: Marketers have to comply with the registry by September, and with the transmission of caller ID information by January 31, 2004. But in late February, the DMA and the ATA sent letters to the FTC requesting a stay, postponing the March 31 deadline.

The DMA asked the FTC to either “forebear from enforcing” or “stay the effectiveness” of the rule changes prohibiting telemarketers from abandoning calls to consumers and requiring telemarketers to record calls in any transaction combining the use of preacquired account information and a free-to-pay conversion.

“We pointed out, for instance, that to get safe harbor when there is an abandoned call, telemarketers will have to leave a recorded message for consumers who answer the phone and no operator is available,” said Jim Conway, DMA’s VP, government relations, at press time. “The message must include the name of firm, the purpose of the call and how consumers may contact the firm. The problem is that the FCC’s Telephone Consumer Protection Act says specifically that you may not leave a recorded message for consumers unless they’re your customers and they’ve given you their consent. So the regulations are at direct odds with each other.”

In its petition, the ATA requested that the Commission stay the effective date of the amended TSR, pending the resolution of the ATA and DMA lawsuits. In the alternative, the ATA sought to delay the effective date until the FCC has completed a review of its telemarketing regulations.

By mid-March, the FTC agreed to stay, until October 1, the implementation date by which it will require full compliance with the call-recording provision of the abandoned-call safe harbor, and partially stay (until October 1) the date at which it will require full compliance with the recordkeeping requirements of documenting the use of a recorded message in instances of call abandonment. According to the FTC, this extension “will ensure that telemarketers have the time to acquire and install the software or hardware necessary to comply with the provision.” The FTC denied the trade associations’ request to delay the effective date of other provisions of the amended TSR.

The FCC is expected to announce whether it will establish a national list by June, according to Rosemary Kimball, director of media relations at the FCC’s consumer and governmental affairs bureau. Unlike the FTC, the FCC has jurisdiction over common carriers, which account for a large number of outbound telemarketing calls, as well as over intra-state calls.

If the FCC decides in favor of a national list, Kimball believes that there will be only one such list.

“We’ve been cooperating with the FTC and plan on a unified list for consumers,” she maintains. “We don’t want duplication of efforts or confusion. But nothing is set in stone.”

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