States Plan Rules on Predictive Dialers

State legislatures are taking aim at the industry's use of one of the tools responsible for the largest improvement in efficiency in the telemarketing industry in the past 20 years: the predictive dialer.

The gains in efficiency realized in telemarketing in the past two decades cannot be overestimated. Suffice it to say, innovations such as computer databases and workstations, competitive long-distance rates and, most importantly, predictive dialers have been responsible for the explosive growth in the industry, a growth that may be unprecedented in the history of direct marketing.

Predictive dialers have helped the industry make more calls using fewer telemarketers. The nature of the efficiency of these computerized marvels cannot be overstated. In 1991, the Telephone Consumer Protection Act barred the use of early versions of dialers, which placed calls randomly or sequentially. However, until this year, the use of predictive dialers that call a specific database of numbers was largely unregulated by state or federal law.

This efficiency gains through the use of predictive dialers have not come without costs — the dollar cost of the sophisticated dialers themselves as well as the cost in time to consumers who sometimes are called even if a telephone sales representative is not available to speak to the consumer.

This second type of cost has two primary symptoms: the pause or “dead time” it takes the dialer to connect the consumer to a TSR once the consumer answers the phone; and the abandonment rate issue, which is when a dialer disconnects the consumer after the consumer answers the phone because no TSR is available.

Self-regulation has long been the only attempt to minimize these symptoms. The Direct Marketing Association, for example, has had ethical guidelines in place concerning the use of predictive dialers and abandonment rates for quite some time.

Until this year, however, states have not had rules specifically applicable to predictive dialers. It is these two symptoms that two states have recently enacted laws to regulate.

The first law was enacted by Kansas, and it requires that a telephone solicitor answer the line within five seconds of beginning the call with either a live operator or a recording (e.g. “Please hold the line…”). An assistant attorney general involved in enforcement wrote me that it was his opinion that the law prohibits any abandonment rate. He continued: “Stalkers, ex-spouses, fanatical suitors — all of these are ideas that can occupy someone's mind when they start receiving calls when no one is on the other end.”

The power of any state to assert a technical procedural standard over an interstate telephone call through a dialer is somewhat questionable (for more on this topic, please see my April 30 column.) However, good judgment dictates that you configure your dialer to play a message for calls into Kansas held for five seconds.

The next state law is much better known, as it was the subject of a heated battle in the California Legislature this year. Gov. Gray Davis signed Assembly Bill 870 into law on Oct. 10. The law prohibits any person from using a predictive dialer to place calls “for which no person, acting as an agent or telemarketer, is available for the person called.”

The law directs the state Public Utilities Commission to establish an acceptable error rate and goes into effect July 1, 2002. The law also allows the PUC to require businesses to maintain records of instances when calls are placed and no TSR is available to submit those records to the PUC.

The language of the law, however, is unclear. Does it intend to prohibit any abandonment rate, or does it allow a business to place calls if at least one live TSR is not talking to a consumer? Or does it mean something else? These questions ultimately will be answered by the regulations from the PUC.

In both states, compliance will be an onerous task. Also, it would not be surprising if more states follow the lead of these two and consider laws this session regulating predictive dialers.

In another development of interest to all telemarketers, California has joined the swelling list of states with laws creating state do-not-call lists. Davis signed SB 771 on Oct. 10, raising the number of states with similar laws to 19. Expect five to 10 more states to consider their own laws.

The attorney general is to administer the list, which is to be in place by Jan. 1, 2003. The attorney general may charge businesses for access to the list, based on the cost of maintaining it, and may charge consumers a fee of up to $1 to sign onto the list for a three-year period. The law allows enforcement either by the state or by individual citizens and penalties of up to $1,000 per violation.

Legislatures will soon be in session, so in the coming months you can expect many pre-filed bills in areas old and new affecting telemarketing. Now is the time to ensure that your business's desires are known to your legislators.

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