Marketers Beware: FTC Narrows Scope of TSR’s EBR
Recent actions by the Federal Trade Commission significantly narrow the scope of the Telemarketing Sales Rule’s existing business relationship exemption and place greater obligations on callers who rely on the exemption to avoid scrubbing call lists against the federal DNC registry. Companies that call current, former and prospective customers need to understand these developments and consider how they may impact their call campaigns in order to avoid potential TSR violations.
Last November, the FTC released a final rule setting forth a number of amendments and clarifications to the Telemarketing Sales Rule (TSR). In large part, the revisions addressed and now prohibit certain payment methods that the FTC has found to be associated with illegitimate telemarketing businesses, such as drafting remote checks and urging consumers to use reloadable debit cards.
While banning questionable payment methods may impact only a small number of companies, of greater concern to all firms that engage in telemarketing are provisions of the rule that addresses the TSR’s Do Not Call regulations (DNC). The final rule places stringent requirements on companies that wish to avoid scrubbing call lists against the DNC registry by claiming an exemption either under an existing business relationship (EBR) with the called parties, or obtaining such parties’ express written agreement to receive calls (EWA).
First, the ruling clarifies that the person claiming the exemption bears the burden of proving the EBR or EWA. According to the FTC, this clarification is intended “to make it unmistakably clear that the burden of proof for establishing an EBR or EWA as an affirmative defense to otherwise prohibited calls to numbers on the registry ‘falls on the seller or telemarketer relying on it.’” While this point may appear obvious, the FTC felt it necessary to clarify this requirement given the multiple DNC cases it has brought where defendants claimed that the TSR did not require them to obtain and possess such authorizations. Marketers who rely on the exemption should therefore ensure that they have effective document retention policies and procedures in place to maintain these records in the event of a challenge.
Second, and more concerning, the ruling declares that an EBR or EWA belongs only to the “specific seller” who obtained it directly from the consumer. Read literally, this statement is, at a minimum, troublesome for, and at worst, lethal to, lead buyers (as well as publishers), as the FTC appears to limit these exemptions solely to companies that develop their own leads. Given the extremity of the statement, it might appear that the FTC is blind to how the lead generation industry operates. But make no mistake, the FTC meant what it said, adding “cold calls to consumers whose names and numbers appear on a calling list purchased from a third-party list broker are prohibited … because the calls are not placed by the specific seller that obtained the EBR or EWA.” Yes, those are exact words.
But don’t fold the tents and move out of Dodge just yet. Just one month after releasing its ruling, the FTC issued its biennial report to Congress on the DNC, which actually recognizes how the lead gen industry works and offers some guidance on how companies may rely on leads generated by others. The FTC warned that unless a campaign specifically identifies the advertisers who will use the lead, those advertisers may not rely on the EBR exemption to avoid scrubbing, because consumers will not know from whom to expect a call.
More specifically, the FTC cautioned “Unless the consumer inquired into the services of a specified seller, or the lead generator made disclosures that would alert the consumer that he or she should expect telemarketing calls from the seller as a result of his or her communications with the lead generator, the seller cannot claim that it has a relationship with the consumer such that it can ignore the consumer’s request not to receive telemarketing calls.”
The FTC has definitely given lead buyers much to think about when contracting with third parties to develop leads. First, they must ensure that their names are specifically included in all lead generation campaigns in order to take advantage of the inquiry EBR exemption to DNC scrubbing. Second, they should demand that lead generators provide them with sufficient proof of the lead in case of a challenge. Failing to follow this guidance can result in consumer complaints and lawsuits and quite possibly an unwelcome letter from the FTC.
Calling Current and Former Customers
But lead buyers are not the only ones impacted by the FTC’s reports. Companies that call current and former customers and rely on the purchase or transaction EBR to avoid scrubbing against the DNC registry are also on notice of changes. Whereas the TSR’s definition of an EBR is silent on the scope of the exemption, the biennial report introduces a context and consumer expectation qualifier, which can significantly impact an intended calling campaign. In discussing whether a consumer whose number is on the DNC registry has an expectation of receiving a call from a company from whom it purchased a product or service, the report states that “[m]any consumers, however, perceive telemarketing calls that fall within this exemption to be inconsistent with the Registry, because the consumers are unaware of the exception or are not aware that they have a relationship with the seller that falls within the definition of an established business relationship.”
The report continues, “Such perceptions by consumers are especially likely when the relationship between the consumer and the seller arises from a brief, one-time transaction, or when the seller identified in the telemarketing call and the seller with whom the consumer has a relationship are part of the same legal entity, but are perceived by consumers to be different because they use different names or are marketing different products.”
These statements are concerning, because the TSR rules do not speak to the context or consumer expectations arising out of a transaction, but merely allow companies to rely on an EBR to avoid scrubbing against the DNC registry. Companies must therefore consider these issues before commencing an outbound telemarketing campaign to current, former and prospective customers. As a threshold matter, the FTC advises companies to consider whether consumers would “likely be surprised by that call and find it inconsistent with having placed their telephone number on the national ‘do-not-call’ registry?” Companies should also consider whether the nature of the transaction would or would not create an expectation by consumers that they may be called, despite placing themselves on the DNC registry. In sum, perception is the new reality.
These developments are significant and need to be addressed by every company that calls current, former and prospective customers. Companies that fail to heed the FTC’s guidance when conducting their call campaigns run the risk of an unwanted and costly regulatory enforcement action and worse, follow-on consumer class actions.
Related story: 12 Steps to Successful Telemarketing Calls