DNC Settlement Opens Affiliate Issue

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A seller of discount health and prescription drug cards and its telemarketer will pay civil penalties of $300,000 and $50,000, respectively, to settle Federal Trade Commission charges that they violated the do-not-call provisions of the FTC's Telemarketing Sales Rule.

This is the commission's first case to highlight the application of DNC provisions to corporate affiliates, the FTC said last week.

The FTC alleged that Peoples Benefit Services Inc., a seller of prescription drug discount cards, dental discount cards, health-related discount cards and an online medical referral service to consumers, authorized its telemarketer, Malvern Marketing, dba Phase One Marketing, to call consumers on the national DNC registry on the basis of an established business relationship with Peoples or its corporate affiliates.

"The case is extremely important because there are many companies that are making the same mistake that this company has made," said Joseph Sanscrainte, an associate with Bryan Cave LLC, New York, and a DM News columnist. "It's easy to think that your EBR relationship applies across all of your different affiliates, but you have to look at the EBR relationship from the perspective of the consumer that you are calling."

Mr. Sanscrainte said the question should be: "Would the consumer expect to receive a call from that affiliate based upon the relationship between the consumer and the first company? If not, then you should not call."

But many companies want to take advantage of EBRs because they provide the opportunity to call more people, he said.

According to the FTC, tens of thousands of calls made by the defendants constituted TSR violations because the defendants did not meet the burden of providing an EBR with those affiliates' consumers.

The FTC also alleged that the defendants violated the Fee Rule provision of the TSR's DNC rule because Peoples did not pay a fee to access numbers on the DNC registry, but instead accessed the registry using the Subscription Account Number of a corporate affiliate, POM, a separately incorporated company selling insurance products.

"Companies want to assume that a bunch of affiliated companies are operating under one umbrella, so they only have to buy one SAN number, but the FTC has an actual two-part test that tells you when you have to pay a separate annual fee," Mr. Sanscrainte said.

Under the test, he said, the FTC first asks whether the entities are separately incorporated, and second, do they market under a different name. "So, if you have four affiliated companies, and if they are separately incorporated, and if they market under a different name, you would have to pay for four different SAN numbers," he said.

The list costs $15,400 per year, he said, and there are discussions to raise it to $17,050.

The FTC also alleged that the defendants violated the TSR by continuing to call tens of thousands of consumers who had asked to be placed on their entity-specific do-not-call lists.

At the FTC's request, the U.S. Department of Justice filed the complaint and proposed stipulated consent orders in U.S. District Court in New York City last week.

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