List Companies More Cautious After FTC Settlement

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The Federal Trade Commission's recent settlement with three list companies has led others in the industry to add caution.


"We are now turning down management files and offers that may have been accepted 10 years ago," said Fran Golub, senior vice president of list management at Walter Karl, Pearl River, NY. "We are a publicly traded company, so we have to be extremely careful."


Golub said Walter Karl's management told all list managers and brokers last week that they need to look through all offers, especially ones involving telemarketing. Employees also will work to keep better records of offer history and to look at continuation orders with more scrutiny.


This new procedure will slow the order approval process because both the list owner and list manager will need more time to review offers, Golub said. Specific categories such as infomercials, sweepstakes, opportunity and beauty offers will raise more red flags, she added.


The Direct Marketing Association issued guidance to list companies last week after meeting with the FTC to get a better understanding as to how the FTC might apply its rules in other cases. In August, Carney Direct, ListData Computer Services and NeWorld Marketing settled allegations of their involvement in a telemarketing advance-fee credit scheme and paid a combined $187,500.


The FTC maintained that the list managers should have known that the scripts submitted by the telemarketers violated the Telemarketing Sales Rule, the DMA said. However, the DMA also said the FTC's interest in the list industry is nothing new, noting that the FTC's goal "has been -- and remains -- to aggressively 'uproot' legal violations by also pursuing those who may have supported, or made possible, a legal violation."


The DMA's official interpretation of the FTC's position is in the guidance. However, Robert Sherman, the DMA general counsel and a partner at Paul, Hastings, Janofsky & Walker, New York, shared his impression of the meeting with the FTC.


"This is nothing more than meets the eye," he said. "The FTC said this is not cause for alarm or a witch hunt against the list industry. Nor are they saying that every list manager has to be a lawyer or guarantor of every offer."


Since the FTC action was a first for the list industry, Sherman said the DMA wanted to know more. He said the meeting's tone was courteous and friendly. The FTC focused on the TSR case involving the three list companies and stood firm that list managers renting telemarketing lists needed to know whether offers violated the law. The FTC also reserved its right to hold the industry accountable in other cases where a list manager knew or should have known that an offer was illegal or potentially fraudulent.


"They are saying that the list industry is not allowed to turn a blind eye," he said.


Chris Paradysz, CEO of ParadyszMatera, New York, and co-chair of the DMA's List Leaders, said the industry "has always had a responsibility to protect consumers and maintain ethical practices. The FTC's enforcement and compliance efforts are new, and the industry is adjusting to them."


Golub said that though she thought the FTC was being a bit unreasonable in holding list managers liable for knowing the law inside and out, the increased surveillance of the industry might have a positive effect.


"It could help make some of the bad guys go away when their offers are repeatedly turned down by list managers," she said.


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