CBA Publications >> CBA Regulatory Compliance Bulletin >> Vol 2003 No.08
August 8, 2003

Vol 2003 No. 08 August 8, 2003

FCC National Do-Not-Call Rules

In January, President Bush signed the Do Not Call Implementation Act (H.R. 395, hereafter, "Do-Not-Call Act"), authorizing the Federal Trade Commission to establish a national do-not-call registry. The FTC has already begun accepting registrations from the public, and telemarketers will be required to purchase the list beginning October 1, 2003 to ensure that subsequent telemarketing calls are not made to registered consumers.

The Do-Not-Call Act also requires the Federal Communications Commission to issue corresponding rules to implement the national registry, consistent with the overall purpose of administering a registry that applies uniformly to all telemarketers. The FCC's action ensures that banks, savings and loans, credit unions (hereafter, collectively, "banks"), insurance companies, and certain other industries not within the general jurisdiction of the FTC will be covered under the national do-not-call program.

In July, the FCC fulfilled its statutory obligation by issuing a substantial revision of its existing regulations ("FCC Rule") that implement the Telephone Consumer Protection Act of 1991 (47 U.S.C. Section 201 et seq., hereafter "TCPA"). The FCC Rule, codified in 47 CFR 64.1200 et seq., sets forth rules governing use of the registry. It also retains the existing requirement for businesses to maintain a company-specific do-not-call list, and prohibits the use of faxes for solicitation purposes unless the recipient has provided a signed, written consent. Significantly, only a qualified exemption is available for existing customers as to calls, but not as to faxes.

The coverage of the FCC Rule is broad and includes any person or business that uses the telephone or fax (but not email) for solicitation purposes without regard to the size of the calling entity or the number of calls made. It also addresses the use of automated technologies, sets a maximum three percent rate for abandoned calls, and requires transmission of caller ID information, as discussed in greater detail below.1

Background

Banks that make telephone solicitations, and telemarketers acting on their behalf, are presently subject to the host of provisions of the TCPA. The FCC Rule is a revision of the rules promulgated pursuant to the TCPA, and includes most of the subject areas to which banks that telemarket are already subject, such as the company-specific do-not-call provisions, use of automated technology, time of day restrictions, and restrictions on faxes.

In 1995, under authority of the Telemarketing Consumer Fraud and Abuse Prevention Act (15 U.S.C. 6101 et seq., hereafter, "Telemarketing Act"), the FTC issued its Telemarketing Sales Rule ("TSR"), codified in 16 CFR. 310 et seq. Generally, the TSR prohibits telemarketers from making unsolicited telephone calls that are abusive or deceptive. Prohibited acts include making threats, using abusive tactics, calling during unusual hours, and a host of other acts. Also, callers are required to make certain oral disclosures.

While the FTC's general jurisdiction does not include banks2, the exemption does not clearly extend to telemarketers who act on behalf of banks. Therefore, as a practical matter, banks that use third party telemarketers have at least indirect responsibilities to comply with the FTC's Telemarketing Act and the TSR as well as the FCC Rule. The FTC rules are beyond the scope of this Bulletin.

The state of California passed its own do-not-call law (AB 771) in 2001 (Business & Professions Code Section 17590 et seq., see CBA Regulatory Compliance Bulletin No. 2001-16). Unlike the FCC Rule, AB 771 does not require maintenance of a company-specific do-not-call list. While AB 771 was intended to become effective this year, the state Attorney General's office, which is charged with the responsibility to create the list, has not yet made the state list available. In anticipation of the creation of a national list, the AG's office in April began allowing California residents to pre-register on the national list. Pursuant to a bill now pending in Sacramento (SB 33), California will not maintain a separate list, but will enforce AB 771 (as amended by SB 33, if passed) as to calls to California residents who are registered on the national list.3

California also has its own version of the FTC's Telemarketing Act that includes many of the same provisions. But supervised financial institutions are not subject to it. Here again, third parties acting on behalf of banks are not exempt. See Business & Professions Code Section 17511.1(e)(10)).

An unresolved question of major importance is to what extent the state and national laws and rules will be applied in California. The states and the FCC both have authority to enforce violations of the TCPA in federal court. But less clear is which provisions of AB 771 are enforceable at all. In the preamble to the FCC Rule, the FCC notes that the federal rules constitute a floor, and therefore would supersede all less restrictive state rules. On the other hand, it also notes that states may adopt more restrictive rules, but only as applied to intrastate activities. A complication arises from the fact that AB 771 applies to calls "made to a California phone number," without reference to where the call is originated.

In the absence of additional guidance-from a state enforcement agency or from the courts for example-it would be prudent to comply with the most stringent provisions contained in either program. Throughout this Bulletin, any differences between the state and federal rules will be discussed; but generally, the federal program is more protective and would prevail in most instances.

FCC Rule

Coverage. A telemarketer under the FCC Rule refers to a person or entity that initiates a telephone call or message for the purposes of soliciting, which is a call to encourage the purchase or rental of, or investment in, property, goods, or services, which is transmitted to any person. AB 771 includes an exception for businesses with no more than five employees if the calls (made by the principal of the business) were made within a radius of 50 miles of the place of business. The FCC Rule creates no exception for businesses based on their size or that make a de minimis number of telemarketing calls. The reasoning is that the cost to obtain access the national database is deemed to be reasonable for even small businesses. Therefore, the state exemption is likely inapplicable.

Calls that do not fall within the description of a telephone solicitation are not affected by the rules. These include surveys, market research, political or religious speech calls, unless they serve as a pretext to a solicitation or a means of establishing a business relationship. Responding to such a survey does not constitute express permission or establish a business relationship exemption for purposes of making a subsequent telephone solicitation (see below on following up inquiries).

All callers must purchase the list for the area codes in which they intend to telemarket, though a list containing no more than five area codes is available from the FTC without charge. The cost of obtaining lists encompassing more than five area codes varies with the size of the intended calling area.

Included on the registry are residential numbers, including cell phones, but not names. A registration is effective for five years, compared to three under AB 771. The registry is updated continuously and automatically, and updates will be available for downloading through the internet at any time without additional charge. A caller must use a version of the registry obtained not more than three months before a call is made, which means updates must be download no less frequently than quarterly. Because updates are so accessible, the FCC may in the future consider shortening the three month grace period.

Company-specific rules. The company-specific do-not-call rules continue to apply. Callers must develop and maintain written procedures, "available upon demand," for maintaining a company do-not-call list, train personnel engaged in telemarketing on the use of the list, and record each request and place the subscriber's name, if provided, and telephone number on the list when the request is made. A request must be honored within a reasonable time after received, not to exceed thirty days, and a person's request may not be shared with any other party without the requesting person's prior express consent.

The FCC also notes, cryptically, that a caller with the capability to honor requests in less than thirty days must do so. It is unclear under what circumstances a person will be deemed to be capable of complying in a period shorter than the 30 day period. A person's do-not-call request precludes a company from using the established business relationship exception.

The revised rule shortens the time in which a company-specific request must be honored from ten years to five years after the request is made. The FCC Rule does not require a caller to make available a toll-free number or web site that would allow consumers to register company-specific do-not-call requests or to verify that such a request was made. The FCC notes, however, that the caller should confirm that any such request will be recorded at the time the request is made, and that a request made in response to a prerecorded message should be processed in a timely manner, and that the caller is not placed on hold for unreasonable periods of time. However, these recommendations are not presently mandated.

As with the do-not-call rules, non-profit organizations and their third party marketers are exempt from the company-specific rules. This position contrasts with the FTC's rule that does not exempt non-profits.

Unsolicited fax advertisements. The TCPA requires a person to obtain the prior express invitation or permission of the recipient before transmitting an unsolicited fax advertisement. This applies to the caller's own customers, as the established business relationship exception does not apply to faxed advertisements. Covered faxes include those sent to and from computer fax servers and other emerging technologies, and not just telephone fax machines. Express invitation or permission must be in writing and include the recipient's fax number and signature, including an electronic or digital signature valid under applicable federal law or state contract law. Unlike the do-not-call registry, which applies only to residential phone numbers, the fax restriction applies to all recipients, including businesses.

The written permission cannot be in the form of a "negative option" or opt out. The FCC adds that mere distribution or publication of a telephone facsimile number in trade association directories does not constitute permission. And, fax requests for permission to transmit faxed ads, including toll-free opt-out numbers, are not permitted.

Under existing rules, fax broadcasters (i.e., those who fax advertisements and solicitations on behalf of others for a fee) would be exempted from liability for the originators' violation only in the absence of "a high degree of involvement or actual notice of an illegal use and failure to take steps to prevent such transmissions." Thus, if the fax broadcaster supplies the fax numbers used to transmit the advertisement, the fax broadcaster could be liable for any unsolicited advertisement faxed without a recipient's permission. If the company whose products are advertised has supplied the list of fax numbers, the responsibility and liability would rest with that company. But the fax broadcaster could still be liable jointly with the originating company if the broadcaster otherwise had a high degree of involvement, such as determining the content of the faxed materials, or reviewing and assessing the materials.

Messages sent through a fax machine must contain the date and time it was sent and an identification of the sender, and the telephone number of the sender. The sender is the creator of the content of the message, and not the entity that transmits the message. If a fax broadcaster demonstrates a high degree of involvement in the transmission of the fax, it must also be identified on the fax. Identifying information is defined as the name in which the company is registered to conduct business. A dba may also be included in addition to the filed registered name, but not in place of it.

Exceptions

Established business relationship. The FCC Rule modifies the existing blanket exception for calls to persons with whom the caller has an established business relationship. A registered person may be called pursuant to this exception only within 18 months after the person's "purchase or transaction" with the caller. The prior event must have involved a voluntary, two-way communication (as opposed to, for example, a unilateral give-away of a product or service), and the relationship cannot have been "terminated" by either party. The similar exception under AB 771 does not include any time limit.

There is no distinction made as between an ongoing customer, such as an accountholder, and a purchaser of a product (e.g., a cashier's check). The concept of "termination" logically applies only to an ongoing customer relationship, yet the "purchase or transaction" language can be construed to encompass a simple purchase as well as to opening an account.

The 18 month limit would apply even if the consumer is no longer currently receiving services from the calling entity. The term, "purchase or transaction," is not defined, but should credibly be argued to encompass routine banking activities that are recognized as transactions under common usage and pursuant to other regulations (Regulations E and Z for example), such as opening an account or obtaining a loan; processing a check, credit card payment, or electronic fund transfer; accepting a deposit; and receiving a loan payment. Less certain would be the treatment of certificate of deposit holders, crediting of interest, and the act of sending statements.

Inquiries. Within the established business relationship exemption is an allowance for a telemarketing call to be made within three months after the consumer's "inquiry or application" regarding products or services offered by the caller. An inquiry need not include only situations where a purchase or transaction is completed. However, the nature of the inquiry must be such to create an expectation by the called person to receive a call.

Thus, for example, a question regarding business hours or location would not establish the necessary relationship. However, an inquiry regarding a product or service, or the submission of an application, would raise a reasonable expectation in the consumer to receive a follow-up call. If this exception applies, the entity is not limited to calling only regarding a particular product or service. Here again, the prior event creating the exception must have involved a voluntary, two-way communication.

The established business relationship exemption does not encompass making a telemarketing call based on a referral from an existing customer or client. AB 771 specifically permits calls to referrals from persons with whom the caller has an established business relationship, recognizing such calls as falling within the express consent exception. However, the availability of this provision is now questionable.

Under AB 771, a registered person who has inquired about a purchase is deemed to have provided consent to receive a call only within 30 business days after the inquiry. After that period, while consent may be provable, no express request is presumed. Also, a call may not be made after a request by the person not to make further calls.

Affiliated entities. If the caller has an established business relationship with the person called, then the caller's affiliates or subsidiaries may also fall within the exception if the called person would reasonably expect the affiliated company to be included given the nature and type of goods or services offered and the identity of the affiliate. Conversely, a person's do-not-call request to a company would also apply to affiliated entities unless the consumer reasonably would expect them to be included given the identification of the caller and the product advertised.

Note that, under California law, a similar exception extends to third parties even if not affiliated with the calling entity to the extent that the third party shares a "brand identity" with the caller that has the established relationship. The FCC Rule does not contemplate the exception to apply, if at all, to entities not within the same corporate family. Presumably, under AB 771, a specific do-not-call request would apply to any third party that shares a brand identity, whether or not affiliated. Thus, the state's affiliate rule is both more protective and less protective depending on whether it is used for the benefit of the caller or the called party.

Prior express permission. A person may call a registered person if the person had given the caller prior express permission to do so. Such permission must be evidenced by a signed, written agreement between the person and the caller stating that the person agrees to be contacted by the caller, including the telephone number to which the calls may be made. Signatures recognized as such under California's Uniform Electronic Transaction Act or the federal E-Sign Act, or other applicable law, are recognized within the meaning of this exception. The agreement remains in effect as long as the person has not asked to be placed on the caller's company-specific do-not-call list.

AB 771 also includes a prior consent exception, but does not specify how it must be secured (see below on contracts of adhesion). The state law also limits the time in which a follow-up call may be made to 30 days after the consent was granted. Both the state and federal rules permit a caller to obtain permission through direct mailing, but only the FCC Rule specifically prohibits calling a registered consumer in order to obtain permission to call. AB 771 is silent on this issue, but such a call would not come under any specified exception.

The state law also allows a call to a registered person in response to the person's advertisement, to inform a person that a previously unavailable product or service is available if the person had so requested and the call is made within 30 days of the request, and a call to collect a debt or offer an extension of credit to pay a delinquent obligation to the caller. These exemptions are not included in the FCC Rule.

On the other hand, AB 771 (but not the FCC Rule) specifically prohibits securing consent through a "contract of adhesion," which is an agreement that, because of the inequitable bargaining position of the parties, the terms cannot be individually negotiated. Under California law, which provides a blanket established customer exception, the need to secure consent through a standard account agreement to market to current customers without referring to a do-not-call list is largely unnecessary. However, this prohibition becomes more relevant given the FCC's narrowing of the exception. Note also that SB 33, as currently drafted, would limit this exception in a similar fashion as does the FCC Rule.

Personal relationship. The FCC Rule does not apply to calls made to persons with whom the caller has a personal relationship. A personal relationship refers to individuals personally known to the caller, such as family members, friends and acquaintances, with emphasis placed on the reasonable expectations of the person called and not the caller. Thus, if a complaining consumer were to indicate that a relationship is not sufficiently personal for the consumer to have expected a call, the exemption is not likely to apply. The FCC notes that it expects the number of calls made per day pursuant to this exception would be limited, but sets no specific cap.

The exception does not extend to persons referred to the marketer by a person having a personal relationship with the caller. Thus, this rule prevents follow up on referrals from friends and relatives to the extent that those referred have registered with the national list. AB 771 does not include a similar exception.

Safe harbor. To ensure compliance and protection from liability, the FCC Rule establishes a safe harbor for good faith compliance. Specifically, if a person makes a telemarketing call to a number listed on the registry (and no exemption applies), there would be no liability if the call were made in error, and the caller could demonstrate that, as part of its routine business practice, it had developed written compliance procedures, provides compliance training, maintains a current do-not-call list, maintains procedures to prevent telemarketing calls to listed numbers along with records documenting compliance with those procedures, and does not engage in certain unauthorized uses of the list. AB 771 includes no safe harbor provision for an erroneously made call.

Automated telephone dialing equipment. Under the existing rules, use of automated dialing technology is strictly regulated. The FCC Rule covers two types of technology: predictive dialers (equipment that dials numbers and predicts when a sales agent will be available to take calls); and artificial or pre-recorded voice messages. Such technology may not be used to dial emergency numbers, health care facilities, telephone numbers assigned to wireless services, and any other numbers for which the consumer is charged for the call. Automated dialers may not be used to dial large blocks of telephone numbers in order to determine whether a line is a voice line or fax.

The use of a pre-recorded message on a call made to a residential phone line that includes or introduces an unsolicited advertisement or that constitutes a telephone solicitation is prohibited unless made with the called person's prior express consent. This would apply to dual-purpose calls that include both non-solicitation (e.g. service call) and solicitation components. However, this restriction does not apply to calls made to persons who have an established business relationship with the caller. The FCC adds that prior consent may not be obtained during the call, such as requesting that a consumer "press 1" to receive further information.

Abandoned calls. Whenever a sales representative is not available to speak with the person answering the call, that person must receive, within two seconds after the called person's completed greeting (i.e., "abandoned"), a prerecorded identification message that states only the name and telephone number of the business, entity, or individual on whose behalf the call was placed, and that the call was for "telemarketing purposes." No more than three percent of telemarketing calls may be abandoned, measured over a 30-day period. The telephone number so provided must permit any individual to make a do-not-call request during regular business hours for the duration of the telemarketing campaign. The number may not be a 900 number or any other number for which charges exceed local or long distance transmission charges. Calls that reach voicemail or an answering machine will not be considered answered. Therefore, a call that is disconnected upon reaching an answering machine will not be considered an abandoned call. Callers must maintain records establishing compliance with the abandonment rules.

While the problem of abandoned calls is typically associated with the use of predictive dialers and pre-recorded voice messages, the manner in which this provision is drafted makes the rule applicable whether or not automated technology is used. In practice, a live caller not using an automated dialer normally will not abandon a call. Nevertheless, even if an entity does not use calling technology, it may still be required to maintain compliance records regarding abandonment.

Identification requirements. All artificial or pre-recorded messages made for any purpose must identify the caller and caller's phone number that is not a 900 number or other number whose charges exceed the cost of a local or long distance charges. The message, if from a registered business, must contain the legal name under which the caller is registered to operate. For telemarketing messages to a residential phone line, the number provided must permit the called person to make a do-not-call request during regular business hours for (i.e., 9 a.m. - 5 p.m. during the relevant calling campaign).

Other requirements. To allow time for a person to answer the phone, the caller must allow the phone to ring for fifteen seconds or four rings before disconnecting any unanswered call. Callers are required to transmit caller ID information and, when available by the telemarketer's carrier, the name of the telemarketer. Finally, telemarketers using predictive dialers must maintain records that provide clear and convincing evidence that the dialers used comply with the three percent call abandonment rate, ring time, and two-second transfer rule.

Enforcement. The TCPA provides consumers with a private right of action where permitted under state statutory or case law. The Enforcement Bureau of the FCC reviews consumer complaint data and works with state and federal agencies to detect egregious violations. The FCC will focus its enforcement primarily (but not exclusively) on those activities and entities that fall outside the FTC's reach, and on intrastate activities. In furtherance of promoting consistency, the two agencies intend to develop a joint Memorandum of Understanding "in the near future" outlining their respective federal responsibilities under the national do-not-call rules. Enforcement actions could include forfeiture proceedings, cease and desist proceedings, and injunctions.

Except as indicated, the FCC Rule is effective August 25, 2003. The requirements relating to the do-not-call registry and the abandonment rules go into effect on October 1, 2003. The caller ID rules go into effect on January 29, 2004. The recordkeeping requirements are subject to pending approval by the Office of Management and Budget, and will be determined at a later date by the FCC.

For further information, contact: Erica H. McMahon or Richard D. Smith at 202-418-2512, Consumer & Governmental Affairs Bureau. For additional information concerning the information collection(s) contained in this document, contact Les Smith at 202-418-0217 or via the Internet at Leslie.Smith@fcc.gov.

1Two major trade associations representing telemarketers have sued the FTC seeking to block implementation of the national registry, and at least one of the actions has sought to incorporate into the challenge the FCC's new rulemaking. Note, though, that the FCC itself receives no funding for operating the registry nor is it legally charged with operating it, and thus would not be in a position to maintain it in the absence of the FTC.

2 Section 6105(a) of the Telemarketing Act states that enforcement is subject to the FTC's general authority under the Federal Trade Commission Act (see, specifically, 15 U.S.C. 41(a)(2), which states, "The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations, except banks, savings and loan institutions described in section 57a(f)(3) of this title, Federal credit unions described in section 57a(f)(4) of this title, common carriers . . . from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce."

3 State do-not-call lists are required to include all of the registrants on the national database for that state. This would be partly accomplished by having each state transfer existing registrations into the national database within 18 months.

The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice.  Please consult with your counsel for more detailed information applicable to your institution.