Reflections on the past and predictions for the future of telemarketing legislation

As 1996 progresses, it is appropriate to reflect on some of the more significant developments of the past year and to contemplate what the new year may have in store for the telemarketing industry.

There is no doubt that 1995 will be recorded as perhaps the single most significant year in the regulatory history of the telemarketing industry. Clearly, the most significant development was the implementation of the FTC's new Telemarketing Sales Rule, which took effect on the last day of the year. The implementation of this new Rule is significant not only in terms of the substantive impact it will have on telemarketing programs, but also because of the national attention it focused on the telemarketing industry as a whole.

The year ended, however, with an even more significant bang. Shock waves were sent through the telemarketing community in December as the government unveiled Operation Sentinel, a two-year operation resulting in more than 500 arrests in more than 15 states. Operation Sentinel represented the culmination of a concerted effort involving both federal and state law enforcement agencies, including members of various state attorneys general offices, the FTC, the FBI, postal authorities and Internal Revenue Service representatives.

The timing of Operation Sentinel is particularly curious and should send an important message to any company engaged in telemarketing activities. The message is that while compliance with the new FTC. Rule is important, that Rule is not the only law with which telemarketers need to be concerned. Rather, telemarketing activities can and will continue to be subject to the provision of mail and wire fraud statutes, the deceptive advertising and trade practice provisions of various state laws and the individual telemarketing laws of the each state.

To the extent that prize promotion schemes are involved as part of a telemarketing program, marketers must also be careful to observe the provisions of federal and state lottery laws and the more specific provisions of various state prize and gift notification statutes.

The growth and expansion of the joint efforts of the federal, state and local enforcement authorities in combating telemarketing fraud were also witnessed in 1995. The wide scope of Operation Sentinel is stark evidence of the impact that type of joint effort can have on the telemarketing community.

The events of 1995, and particularly those of the last several months, seem to forebode what may be in store during 1996:

1. Enforcements of the New Telemarketing Sales Rule --With the new Telemarketing Sales Rule taking effect on the last day of 1995, there is certain to be enforcement activity under the new Rule in 1996. You may recall that one of the unique provisions of the Rule is that it grants the authority to all 50 state attorneys general to enforce the provisions of the Rule. This new year will surely provide a testing ground for this provision.

2. Increased State Regulation -- While much attention has been focused on the FTC's new Telemarketing Sales Rule, telemarketers should not lose sight of the fact that this new federal telemarketing law does not preempt state laws to the extent that state laws are more restrictive. Individual states are adopting telemarketing statutes in increasing numbers. At present, 31 states have their own telemarketing laws.

It is also important to note that many state laws do not contain the same exemptions provided for the FTC's new Telemarketing Sales Rule. For example, the Telemarketing Sales Rule generally does not apply o inbound calls with certain limited exceptions. Many state laws, however, apply to both outbound and inbound telemarketing programs. In addition, if any type of prize or premium is offered in connection with the program, the number of states with applicable statutes becomes even greater. To the extent that a state may be frustrated by the narrow scope of the FTC's new Telemarketing Sales Rule, it may turn increasingly to enforcement of its own state laws as well.

3. Increased Focus on Marketing List Practices --Federal and state enforcement and regulatory authorities have become increasingly interested in and knowledgeable about mailing and telephone list practices within the telemarketing community. Enforcement authorities are particularly concerned about mailing list practices designed to target the elderly for telemarketing solicitations. Within the coming year, we're likely to see increased attention focused on this aspect of the telemarketing industry.

For example, at the end of last year, a joint task force conducted by the Chattanooga Telemarketing Fraud Task Force indicted 11 telemarketers who allegedly targeted elderly consumers. The increased regulatory focus on the targeting of the elderly is significant because the Federal Crime Bill passed last year contains enhanced fines and prison terms for telemarketers who target consumers over the age of 55. The Chattanooga case is the first in the nation to utilize the recently enacted telemarketing fraud enhanced penalties statute. The statute provides for enhanced penalties of up to 10 years for each victim solicited over the age of 55.

There is clearly an increased level of inquiry and sensitivity among state attorneys general as to the mailing list practices employed by direct mailers and telemarketers. Questions concerning these practices are now almost a routine part of any investigative demand or subpoena issued in conjunction with an investigation or inquiry. To the extent that marketers are indeed targeting the elderly for the sale of products not specifically suited to this segment of the population. marketers should be aware that they may be running the risk of enhanced prison terms.

4. Increased Supplier Liability -- The FTC's new Telemarketing Sales Rule contains an aiding and abetting provision stating that those who provide support services to telemarketers may be held liable if the telemarketer violated certain provisions of the Act, if the supplier knew or consciously avoided knowledge of the fact that the telemarketer was violating the Rule. There are two categories of suppliers that may be particularly vulnerable under this provision. First, given regulators' marked sensitivity to practices targeted at the elderly, those who provide list services to telemarketers should be leery if they receive requests for lists targeted specifically at this age group. List managers or brokers who assist telemarketers in supplying such lists could be charged with constructive knowledge of a telemarketer improperly targeting the elderly. At bare minimum, the list broker or manager should inquire as to the nature of the product for which the list will be used and whether the targeting of the elderly is supported by a valid business purpose.

The second category of suppliers who should be particularly concerned by the aiding and abetting provisions are service agencies. Some of the new FTC Sales Rule requirements fall peculiarly within the province of the service agency, which would be in a prime position to know if the rules are being violated. For example, a service agency would certainly be charged with knowledge as to whether or not particular scripts comply with the disclosure provisions of the Telemarketing Sales Rule. Similarly, service agencies are in a unique position to know whether clients maintain do-not-call lists as required by the Rule. Finally, service agencies should review their contracts to ensure that record-keeping requirements are properly allocated.

While the coming year will undoubtedly bear witness to increased enforcement activity and headlines about boiler room telemarketing scams, the implementation of the new FTC Rules and industry cleanup thus far should provide legitimate telemarketers with the opportunity to build and renew consumer confidence and acceptance of their programs as well.

Linda Goldstein is a partner in the law firm of Hall Dickler Kent Friedman & Wood LLP, and is also head of the firm's advertising, promotion and new media low department. She represents advertising and sales promotion agencies nationwide and serves as a special advertising counsel to Fortune 500 and leading consumer product companies.

Copyright Technology Marketing Corporation Feb 1996
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