For telephone solicitors, what a difference a year makes. Regulatory changes in 2003 have transformed the telemarketing industry, with broad ramifications for businesses that use the phone to target prospective customers.

Most notably, the federal government created the national do-not-call registry, a list of home and cellular numbers that mostly are off limits for telemarketers. By March 2004, U.S. consumers had placed 58 million telephone numbers on the registry, including 7 million California numbers. The registry's viability was uncertain until earlier this year, when the 10th U.S. Circuit Court of Appeals overturned a district courts ruling that the registry violated the First Amendment. Mainstream Marketing Services Inc v. FTC , 358 E3d 1228 (2004).

The registry, it seems, is here to stay.

While the registry has received much publicity it is only the tip of the regulatory iceberg. Advising businesses that make outbound sales calls to consumers requires familiarity with two sets of federal statutes and regulations as well as state law.

Federal regulation of telemarketing is not new. In the Telephone Consumer Protection Act of 1991, Congress directed the Federal Communications Commission to develop rules addressing “the need to protect residential telephone subscribers' privacy rights to avoid receiving telephone solicitations to which they object.” 47 U.S.C. Section 227(c)(1). In 1994, Congress passed the Telemarketing and Consumer Fraud and Abuse Prevention Act, instructing the Federal Trade Commission to adopt rules prohibiting deceptive and other abusive telemarketing acts or practices. 15 U.S.C. Section 6102 (a)(1). The agencies each adopted regulations that, among other things, prohibited calls to consumers who requested not to be called. Consumers, however, could not place their numbers on any centralized do not-call list.

In 2003, with encouragement from Congress, the Federal Trade Commission and Federal Communications Commission revised their rules. See 16 C.F.R. Part 310 (FTC rules); 47 C.F.R. Section 64.1200 (FCC rules). The rules overlap but only to a limited extent.   In broad terms, the FCC focuses on the means of telemarketing, while the FTC also aims at the substance of the sales pitches.

Evaluation of a telemarketing program includes a threshold question of whether both sets of federal regulations apply. The Federal Communications Commission rules encompass both interstate and intrastate calls, while the Federal Trade Commission's rules are limited to marketing programs that involve more than one interstate call. The FCC rules also reach certain business sectors that are beyond the FTC's jurisdictional reach, including airlines, telephone companies and certain financial institutions. On the other hand, even though neither set of rules affects telemarketing by tax-exempt nonprofit organizations, most of the FTC rules do apply to charitable solicitations when made by for-profit telemarketers, also known as “telefunders.”

Thankfully for all concerned, the FTC and FCC rules create a common mechanism for consumers to opt out of telephone solicitations. The FTC mains the do-not-call registry, which has been in effect since October; consumers may add their numbers to e registry, at no charge, through the FTC's Web site (www.ftc.gov) or a toll free number (888-382-1222). The FTC, and FCC rules require telemarketers to “scrub” their call lists against the numbers contained in the registry at least once every three months. Starting in 2005, the scrubbing must occur at least once every 31 days.

Merchants can place calls to numbers on the registry if they (1) have the consumer's express written consent, or (2) have an “established business relationship” with the consumer. Under the FTC's definition, which is narrower than the FCC's definition, an “established business relationship” exists where the consumer made a purchase, rental or lease from the merchant (or a payment on a prior purchase) within 18 months preceding the call or where the consumer made an inquiry or submitted an application to the merchant within three months of the call. However, even where an “express business relationship” exists, telemarketers must respect express opt-out requests from consumers.  

Indeed, all consumers, whether or lot their numbers are on the registry, can preclude unwanted calls from particular businesses by orally advising telemarketers to stop making calls. Hence, to comply with the federal rules, merchants must double scrub any lead lists they acquire, first against a recent version of the registry and then against their own company specific do-not-call lists.

In addition to the do-not-call provisions, the FTC and FCC rules place assorted limitations on the placement of telemarketing calls. For example, telemarketers cannot call before 8 am. or after 9 p.m. and they must transmit caller m information. The rules limit the use of pre-recorded sales pitches and prohibit telemarketers who use predictive (that is, automated) dialers from abandoning more than a small percentage of their calls.

The FTC's rules require telemarketers to disclose certain categories of material information clearly and conspicuously before the consumer pays for the offered goods or services. For example, if the merchant has a policy that “all sales are final,” telemarketers must communicate that information to the consumer. Special disclosures apply to such areas as prize promotions and the offer of credit card loss protection.

Who are the watchdogs? The FTC and FCC, of course, may enforce their own rules. State attorneys general may sue in federal court.   Indeed, California Attorney General Bill Lockyer has been faster to the courthouse than his federal counterparts. In the last few months, Lockyer has filed two actions alleging that telemarketers improperly dialed numbers listed on the registry.

One salient difference between the Federal Trade Commission and Federal               Communications Commission rules — arising from quirks in their enabling statutes — is that the latter are more amenable to private enforcement.   Although businesses have some safe-harbor protections, consumers may sue in state court for violations of the FCC rules and may obtain actual damages or up to $1,500 in statutory damages, plus injunctive relief. 47 U.S.C. Section 227(b)(3). In Kaufman v. ACS Systems , 110 Cal.App.4th 886 (2003), the court confirmed that California consumers may pursue class actions in Superior Court for violations of the Telephone Consumer Protection Act and the associated FCC rules. In contrast, under the FTC's rules, a consumer has a private remedy only if his or her actual damages exceed $50,000, and the consumer must sue in federal Court 15 U.S.C. Section 6104.

Telemarketers who navigate the federal regulatory shoals are not assured f smooth sailing. Since the federal law as limited pre-emptive effect, telemarketers also must watch for state laws. California, the Legislature moved quickly to harmonize state law with the revised federal standards. See Statutes 2003, Chapter 779 (SB33). Effective January. 1, 2004, our state's do-not-call list consists of all California numbers on the National Do Not Call Registry. Business and Professions Code Sections 17590 and 17592. State law prohibits calls to numbers on the do-not-call list, with exceptions akin but not identical to those at the federal level. The law also bars misuse of the do-not-call list and the sale, lease or exchange of any telephone solicitation list that contains numbers located on the do-not-call list. Business and Professions Code Sections 17591 and 17592.

State and local prosecutors may enforce the California law, which authorizes an elevated civil penalty equivalent to what the FTC may seek for violations of its telemarketing rules (currently up to $11,000 per violation). Business and Professions Code Section 17593. California consumers who receive calls to home or cellular numbers they have placed on the registry may sue in small-claims court to enjoin further calls, and the small-claims court may award statutory damages of up to $1,000 for violations of its injunction. However, because consumers may enforce the FCC's telemarketing rules in Superior Court, as noted earlier, they may eschew the small-claims court option. Of course, public and private prosecutors are likely to plead transgressions of the federal and/or state telemarketing restrictions as violations of the state's unfair-competition law (Business and Professions Code Section 17200).

Where does all this leave businesses that use or contemplate using telemarketing? From an efficiency perspective, the registry allows telemarketers to avoid calling consumers who are unlikely to make a purchase. Yet businesses should anticipate vigorous public and private enforcement efforts in 2004 and beyond. The complex regulatory framework is such that no business should undertake telemarketing without careful preparation and a compliance program.