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October 20, 2016Download PDF

The Ostrich And The Telemarketer, Or Why You Still Get So Many Spam Calls

Picture it: after a long day of work you come home hungry and tired to the smell of a delicious dish cooking in the oven. You pour yourself a glass of your favorite beverage, sit down at the table and get ready to dig in when the phone rings. You get up to answer and when you do you hear a synthetic, slightly creepy voice telling you you’ve been selected to win a very special prize, or gauging your interest in purchasing a medical alert device, or a free cruise, or etc. etc. etc. After either immediately hanging up or spending some time chewing out the person on the line – that is, if you ever even get to a real person – you come back to your (possibly cold) meal bothered by the annoyance and intrusion on your privacy.

Everyone has had this experience, and it’s not exactly news to say that telemarketers are looked upon, shall we say, unfavorably by the general public. In fact, this problem has been so ubiquitous for so long that a quarter century ago Congress passed the Telephone Consumer Protection Act, or “TCPA” (47 U.S.C. § 227) in order to curb invasive telemarketing practices.

While the TCPA does not ban all telemarketing activities, it does greatly restrict telephone solicitations and the use of automated telephone equipment. The TCPA limits the use of automatic dialing systems, artificial or prerecorded voice messages, SMS text messages, and fax machines. It also specifies several technical requirements for fax machines, autodialers, and voice messaging systems, principally with provisions requiring identification and contact information of the entity using the device to be contained in the message.

25 years later, however, these calls are still pervasive: indeed, the number of lawsuits alleging violations of the TCPA continues to increase every year. There are several reasons for this, but one of the most significant is the fact that companies looking to advertise their goods and services through telemarketing have found creative ways to avoid liability under the TCPA.

Imagine a company, Credit Co., which offers debt counseling services. Credit Co. wants to add new customers through cold-calling publicly available telephone numbers using an automatic dialing system, but its savvy in-house counsel knows this could lead to problems under the TCPA. So Credit Co. contracts with another company, Fly By Night, LLC, which agrees to telemarket on Credit Co.’s behalf. The contract states that Fly By Night will abide by all relevant federal laws. Credit Co., the title “Ostrich” here, then buries its head in the sand while Fly By Night’s telemarketing campaign violates the TCPA over and over again, perhaps thousands of times. Credit Co. makes no effort whatsoever to ensure that Fly By Night is abiding by the law, and in fact consciously avoids doing so. Three weeks later, after the campaign is complete, Fly By Night dissolves. Two days later, a new entity, Night By Fly, LLC, enters into a new contract with Credit Co. for similar telemarketing services. And so on.

You can see the game: Credit Co., a large, well-capitalized company, hires a third party, which has little or no assets, may not even exist for more than a few weeks or months, and is likely located outside of the United States, to do the dirty work for it. If some citizen then tries to sue Credit Co. for violating the TCPA, Credit Co. can say: “Hey, we said in the contract they had to follow the law, we didn’t do anything wrong!” Meanwhile, Fly By Night and its successors have mysteriously vanished into the either. You now see a large part of the reason the TCPA has been less effective than desired in reducing or eliminating telemarketing abuses – companies are smart and have developed ways to get around the TCPA.

There is a solution, however. Rather than simply resting on the legal principles of an “agency” relationship (which have various ins and outs that need not be discussed here, and may still allow a company in the position of Credit Co. to avoid any liability whatsoever), the Federal Trade Commission and/or Federal Communications Commission, each of which have been granted the power to issue regulations implementing the TCPA, should require companies engaging third-party telemarketers to follow strict, specific policies and procedures to ensure that those telemarketers are following the law. For example, Credit Co. should be required to randomly review recordings of a certain percentage of the calls Fly By Night makes to ensure that the TCPA is being followed. Every Fly By Night telemarketer should have to clearly identify that he or she is calling on behalf of Credit Co. (this is another current method of avoiding liability: never telling the consumer the real name of the company until the sale is made, if then), and each of the recordings provided to Credit Co. would need to reflect that. If Fly By Night succeeds in obtaining a new customer for Credit Co., Credit Co. should be required to confirm with the customer that he or she was not contacted via an unsolicited call, text message, or fax.

There are certainly other quality control measures that could and should be implemented, but the above would be a good start towards putting the entity actually benefitting the most from illegal telemarketing on the hook. The regulations should state that if Credit Co. does not institute the identified quality control procedures, it may be held liable for its third-party telemarketers’ actions even absent a showing of vicarious liability under common law agency principles.

While companies who would be harmed by such a regulatory scheme are likely to complain about the costs of compliance, the proposals above are not onerous and could be easily accomplished even by smaller and mid-size businesses. Compliance costs must also be weighed against the interest of the general public in avoiding harassment by telemarketers invading their privacy by pushing unwanted products and services on them. Indeed, if this path, or something close to it, was followed, it would go a long way towards ensuring that the next time you sit down to your favorite meal, it won’t be cold. And I think we can all agree that’s a good outcome.