New Legal Challenges Await Us in ’05

Looking at governmental enforcement efforts in 2004 with an eye on the coming year, it seems that federal and state regulators intend to hold service providers of direct marketers who violate the law accountable for the acts of their clients.

All businesses in direct marketing need to take into account new laws that micromanage marketing businesses as well as the “new reality” of the developing legal climate where other businesses that support marketers are being held liable for advertising programs.

Here is a summary of some important developments in 2004:

Supplier liability. The regulations promulgated under the Telemarketing Sales Rule in 1995 imposed liability on people who provide substantial assistance or support to a telemarketer that the supplier knew or should have known would violate the TSR. The Federal Trade Commission contends that such liability was proper under the “dandelion” theory, where the only effective means to combat telemarketing misconduct was to attack the root – the supplier – whose services the telemarketer required to conduct business.

Though this regulation stayed on the books for nearly a decade, it was rarely enforced except when the supplier had an active role in the marketer’s business. That all changed in 2004, when the FTC made clear through settlements against three list management companies and some electronic check debiting companies that it intended to hold those businesses liable for the acts of the telemarketers they serviced.

These actions are not the end of enforcement activity against suppliers, as federal and state investigations continue to proceed against businesses ranging from check processors to print space brokers to list management companies. The conclusion: Any business that supplies a marketer, particularly a telemarketing business, must undertake sufficient due diligence to ensure that the marketer is conducting its campaign properly, including reviewing scripts and marketing materials.

Written opt-in required for faxing? A provision of the Telephone Consumer Protection Act prohibits sending a fax for marketing purposes, unless the sender has received the recipient’s prior express invitation and permission. Currently, a fax sender may rely on an established business relationship for permission to fax an ad.

However, beginning June 30, 2005, consent can be obtained only by written permission, which includes the fax number to which any ads may be sent. The effective date of the written-consent provision has been postponed twice in response to industry outcry, but it remains to be seen whether this change will be put off further or for good. Businesses that use faxes to market or promote their goods and services should begin obtaining written consent so that they are not caught off guard if the rule takes effect this summer.

Negative-option notice requirements. Connecticut and Illinois have new notice requirements covering marketers who bill consumers on an automatic-renewal basis. The requirements vary based on the length of the automatic-renewal contract.

For example, under the new Illinois law, offers that include contracts for an initial period of a year or more and provide for automatic renewal for more than one month must provide a written notice of the automatic renewal between 30 and 60 days prior to the cancellation deadline for the renewal. Connecticut law has additional notice provisions for contracts lasting more than six months.

California privacy laws. New laws are taking effect in California. For example, companies that disclose consumers’ personal information for use in direct marketing campaigns will be required to meet new obligations. Upon a customer’s request, a business must provide details about the type of personal information it shares with other businesses, along with the names and addresses of companies with whom the information is being shared.

Alternatively, a business may provide a privacy statement offering a cost-free means to opt out of that business’ information-sharing activities.

Also, a law takes effect to regulate spyware, which is considered a program that modifies computer settings, collects personal information or takes control of an unsuspecting computer user’s computer.

Separate scrubbing of wireless numbers. The TCPA for many years has prohibited telemarketers from placing autodialed or prerecorded calls to wireless numbers. Yet since the end of 2003, local number portability has let consumers port numbers used for landline service to wireless service.

Given what is essentially a ban on marketing to wireless numbers, marketers must know which numbers are wireless numbers before placing a telemarketing call, even if the number is not on the national do-not-call list. The solution: yet another list for telemarketers to buy and download.

Instead of simply adding these numbers to the federal DNC list, the Federal Communications Commission established a different list, with different time frames to scrub. Unlike the federal DNC, which requires scrubbing every 31 days, telemarketers get only a 15-day safe harbor provision to not call wireless numbers once they have been ported. Telemarketers can buy a list, updated daily, from NewStar or the Direct Marketing Association (as a reseller) of phone numbers that have been ported. This separate list requires payment of an additional fee.

Conclusion. These new laws, combined with increased enforcement activities, make clear that anyone involved in direct marketing must proceed cautiously. Businesses are advised to undertake due diligence regarding not only their practices, but also the practices of those with whom they do business.

Related Posts