The FTC has been cracking down on telemarketers cold calling numbers supplied in prize promotion entries. But were these really “cold” calls and could UK telemarketers learn any lessons from the US experience? Natasha Shabani of LA law firm Rutter, Hobbs & Davidoff reports.
Topic: Telemarketing
Who: US Federal Trade Commission, Craftmatic Industries and All In One Vacation Club
When: 2007 – 2009
Where: US
Law stated as at: April 2010
What happened:
In these rough economic times, companies are vigorously seeking new ways to expand their customer base and reach out to a greater number of people in an effort to jumpstart sluggish sales. Thus, many companies have turned to the use of sweepstakes entry forms as a way to harvest consumers’ telephone numbers for purposes of telemarketing. If done correctly, this may be a legitimate marketing tool; however, companies that are not extremely cautious and diligent in their use of this technique may find themselves in hot water with the Federal Trade Commission (“FTC”).
The FTC recently has addressed this very issue and, in more than one instance, has cracked down on companies that violated Do Not Call (“DNC”) regulations by calling telephone numbers obtained via sweepstakes entry forms.
Telemarketing practices are regulated by the FTC and the Federal Communications Commission (“FCC”). The National Do Not Call Registry (“Registry”), which is managed by the FTC and enforced by the FTC, FCC and state officials, is a list of telephone numbers from consumers nationwide who have indicated their preference to limit the telemarketing calls they receive. Sellers and/or their telemarketers are required to pay fees to access the Registry and to remove from their calling lists the telephone numbers in the Registry.
Key Do Not Call exemptions
However, there are two exemptions that allow telemarketers to contact even those consumers whose telephone numbers are on the Registry, under certain limited circumstances. The first exemption applies when there is an “established business relationship” between the consumer and the seller.1 The FTC and FCC rules provide that a company who has an established business relationship with a consumer who is on the Registry may nonetheless call this consumer for up to 18 months after the consumer’s last purchase or last delivery, or last payment, and up to 3 months after any inquiry or application by the consumer, unless the consumer asks the company not to call again.2
Under the second exemption, companies may contact consumers on the Registry if they have obtained the prior express permission of those consumers.3 Such express permission must be evidenced by a signed written agreement between the consumer and the seller which states that the consumer agrees to be contacted by this seller, including the telephone number to which the calls may be placed. If the consumer subsequently requests not to be called, the seller must stop calling the consumer regardless of whether the consumer continues to do business with the seller. Telemarketers may not call consumers on the Registry to request written permission to be called.
Thus, in sum, companies may legally telemarket to consumers whose numbers are on the Registry if there is either an “established business relationship,” or an “express agreement in writing.”
Exemptions narrowly interpreted
Regarding the “established business relationship” exemption, the FTC has warned that it is to be narrowly crafted and should be consistent with “consumer expectations.”4 In particular, the key issue in showing an established business relationship based on a consumer inquiry is whether, under all the circumstances, the consumer has taken an action such as would “reasonably lead to an expectation of a prompt follow-up telephone contact.”5
Similarly, with regard to the “express agreement” exemption, the FTC has explicitly stated that such written agreement must be “clear and conspicuous,” and that it must include the consumer’s signature demonstrating his or her assent to be called by or on behalf of the particular seller for telemarketing purposes.6 The FTC also has expressly stated that attempting to obtain a consumer’s “express agreement” through subterfuge, such as by use of a prize promotion or sweepstakes entry form, does not constitute an affirmative defense to the do-not-call requirements.7 Specifically, the request for express agreement cannot be hidden; printed in small, pale, or non-contrasting type; hidden on the back or bottom of a document; or buried in unrelated information where a person would not expect to find such a request.8
The FTC has noted that, in the past, sweepstakes entry forms often have been used in a deceptive manner to obtain “authorization” from a consumer to incur a charge or some other detriment.9 Accordingly, FTC scrutiny was already in place relative to any use of such sweepstakes entry forms as a way to get a consumer’s permission to place telemarketing calls to his or her number.
Craftmatic's "Phone number is entry number" tactic costs $4.4m
In 2007, the FTC brought a complaint against Craftmatic Industries, the automatic bed maker. Craftmatic ran a sweepstakes offering consumers who filled out an entry form the chance to win a prize – a Craftmatic bed. The sweepstakes form indicated that the consumers’ telephone number was their entry number as well. However, the form did not indicate that by filling it out consumers would receive sales calls, and the company did not seek consumers’ express consent to call them.
Using the information from the sweepstakes forms, Craftmatic called tens of thousands of consumers who entered the sweepstakes (including calls to phone numbers that were listed on the Registry), to try to convince them to purchase a bed. In settling the complaint, Craftmatic agreed to pay a $4.4 million civil penalty.10 The FTC sent a clear message in its pursuit of Craftmatic that a sweepstakes entry form does not suffice to establish a prior business relationship, nor does a consumer’s submission of a sweepstakes entry form constitute express authorization to be called.
"For soliciting sales" warning did not save All In One Vacation Club
The FTC went even further in the All In One Vacation Club case in 2009. All in One, a telemarketer of time shares and vacations at time share resorts, offered a sweepstakes to consumers who were interested in winning vacation packages and other prizes. A consumer who wanted to participate in one of All In One’s sweepstakes could do so by filling out an entry form made available by at kiosks at various retail establishments, including shopping malls. All In One’s sweepstakes entry form required a consumer to provide his or her name, telephone number, home address, email address and signature. The form required that a consumer fill out all this information before the consumer could enter the sweepstakes. All In One would then call these consumers, many of whose numbers were on the Registry, to try to convince them to purchase a timeshare or other vacation offering.
The front of the sweepstakes entry form contained the following statement in a clear and conspicuous font and size: “This advertising material is used for the purpose of soliciting sales of a vacation ownership plan.” On the back of the form, the same statement was repeated in large font, and in smaller font was the following statement: “By filling out this entrance form you are consenting to be removed from any no call registry for the specific purpose of allowing the sponsor to contact you with a discounted travel opportunity that is separate from the sweepstakes offered above.”11
The FTC found that the completed sweepstakes entry forms did not constitute a “consumer's inquiry or application regarding a product or service offered by the seller” under the Do Not Call provisions. The form would not lead a reasonable consumer to expect that, by completing it, the consumer would receive a prompt follow-up call by the seller about its timeshares and other vacation offerings. Thus, the FTC concluded, All in One did not have an established business relationship for calls to numerous consumers’ numbers on the Registry.12
No "express agreement" despite fine print
Further, the FTC found, the completed sweepstakes entry forms also did not constitute “express agreement” under the Do Not Call provisions, despite the presence of the fine print on the back of the form. The form did not advise consumers in a sufficiently clear and conspicuous manner that, by putting down his or her phone number on the entry form, the consumer was giving express authorization to be contacted by All in One for telemarketing purposes. Accordingly, the completed sweepstakes entry form was also not an express written agreement that clearly evidenced the consumer’s authorization for calls by or on behalf of the seller.13
The FTC imposed a civil penalty of $275,000 on All in One for its Do Not Call violations.
Thus, according to the FTC, filling out a sweepstakes entry form does not create an “established business relationship” that would allow the company to call telephone numbers on the DNC Registry; nor does the fine print on the entry form suffice to obtain “express agreement” from a consumer to be called.
The bottom line for US telemarketers
The bottom line for US telemarketers is that a company wishing to collect telemarketing leads via a sweepstakes entry form must be very careful in the creation of its entry form. The entry form must be extremely clear and conspicuous in its disclosure to consumers that their entry form information will be used for telemarketing purposes. Such disclosure would need to be clearly stated in reasonably large print on the front of the sweepstakes entry form, and include a signed statement by the consumer so as to constitute “express agreement” under the Do Not Call provisions.
As an example, it would advisable to include a statement on the front of the entry form such as the following: “By entering into this sweepstakes, I understand and agree that I may be telephoned by the sponsor for marketing/solicitation purposes that are unrelated to this sweepstakes.” The form should be signed by the consumer. Alternatively, if the sweepstakes entry mechanism is online via a website, the consumer should have to affirmatively check a box next to this statement indicating his or her assent. It should be noted, however, that the FTC has specifically emphasized that a consumer’s assent is not “affirmative” if the consent button is pre-checked as a default; in this situation the consumer’s submission of an online sweepstakes entry form would not be deemed to constitute “express agreement” to be called.
Why this matters:
So far the UK has not seen equivalent enforcement action, but its "do not call" laws are strikingly similar to those set out above.
British telemarketing laws are contained principally in the Privacy and Electronic Communications (EC Directive) Regulations 2003.
Regulation 21 (1) provides that "a person shall neither use nor instigate the use of a public electronic communications service for the purposes of making unsolicited calls for direct marketing purposes where
(a) the called line is that of a subscriber who has previously notified the caller that such calls should not for the time being be made on that line; or
(b) the number allocated to a subscriber in respect of the called line is [on the UK do-not-call register operated by the UK Telephone Preference Service ("TPS")]."
Regulation 21 (4) then goes on to say:
"Where a subscriber …has notified a caller that he does not, for the time being, object to [direct marketing] calls being made on that line by the caller, such calls may be made …notwithstanding that the number [is on the TPS do-not-call list]."
UK compliance guidance echoes US approach
Guidance published by the Information Commissioner's Office indicates that direct marketers looking to make unsolicited calls must make a prior check of the TPS do-not-call list unless the marketer has been given a clear indication by the subscriber that they will be happy to receive such calls.
Here we see an echo of the US "established business relationship" exemption, whilst the UK exemption for cases where the caller has notified his non-objection is similar to the US "express agreement" scenario.
With a new Information Commissioner looking to ramp up enforcement of UK data privacy laws and super communications regulator Ofcom set to increase to £2m the maximum fine for "persistent misuse" of telecommunications systems, it seems unlikely that their interpretation of the do-not-call exemptions will be any less restrictive than the FTC's, so UK telemarketers would do well to take heed of these decisions when crafting data capture mechanisms, disclosures and opt in/opt out box wordings.
UK mobile phone points to remember
UK marketers should also bear in mind that whilst different rules apply to capturing mobile phone numbers to use for text messaging (in a prize promotion entry scenario, failure to tick an opt out box should normally allow future marketing texts advertising the promoter's "similar" products), all the above "do-not-call" rules will continue to apply if the plan is to make non-automated DM calls to mobile phone numbers.
Natasha Shabani
Attorney
Rutter Hobbs & Davidoff, Los Angeles
nshabani@rutterhobbs.com
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1 16 C.F.R. § 310.4(b)(I)(iii)(B)(ii)
2 16 C.F.R. § 310.2(n)(2)
3 16 C.F.R. § 310.4(b)(1)(iii)(B)(i)
4 68 Fed. Reg. 4580, 4591-94
5 Id. at 4593
6 68 Fed. Reg. 4580,4634
7 “The Written Permission to Call Exemption,” Complying with the Telemarketing Sales Rule at p. 44, at http://www.ftc.gov/bcp/edu/pubs/business/marketing/bus27.shtm#DNCexemptions
8 Id.
9 Id.
10 FTC Complaint against Craftmatic Industries, Inc.,et. al. (United States District Court for the Eastern District of Pennsylvania), FTC File No.: 042-3094. A copy of the complaint may be accessed at: http://www.ftc.gov/os/caselist/0423094/071106craftmaticcmplt.pdf
11 A copy of the All In One entry form may be viewed on the last page of the following link: http://www.ftc.gov/os/caselist/0723047/090126allinonevacationcmplt.pdf
12 FTC Complaint against All in One Vacation Club, L.L.C., et al (United States District Court for the Middle District of Florida, Orlando Division), FTC File No.: 072-3047. A copy of the complaint may be accessed at http://www.ftc.gov/os/caselist/0723047/090126allinonevacationcmplt.pdf
13 Id.
