January 8, 2003

The Telemarketing Sales Rule and Associations

8 min

When the Federal Trade Commission ("FTC") issued a Notice of Proposed Rulemaking ("NPRM") with amendments to the Telemarketing Sales Rule ("TSR") last January, it appeared that there would be major implications for the trade and professional association community. Among the more disconcerting proposals, the NPRM suggested that many nonprofit entities would be subject to a national do-not-call ("DNC") list (even when calling their own members). Just before the holidays, the FTC issued the final version of the amendments to the TSR and although there are very few situations where an association will be subject to the DNC list, there are other aspects of the TSR that will impact telephone calls from associations. The FTC is still seeking funding from Congress for the DNC list; the FTC has indicated that it expects the list to be operational seven months from the time it receives funding.

The FTC has jurisdiction only over organizations that are "organized to carry on business for its own profit or that of its members." This generally excludes charitable organizations (501(c)(3) entities) and social welfare organizations (501(c)(4) entities) but includes many trade and professional associations (501(c)(6) entities). In the California Dental Association v. FTC case, the Supreme Court looked to insurance and financing available to the trade association’s members and the association’s lobbying, litigation, marketing, and public relations activities on behalf of its members to find that the association was within the FTC’s jurisdiction. The Court did not provide a clear-cut line as to when a trade or professional association would be within the FTC’s jurisdiction. Rather it explained that there must be a "proximate relation to the lucre" and that "an organization devoted solely to professional education may lie outside the FTC Act’s jurisdictional reach." Given the broad reading by the Supreme Court, many 501(c)(6) organizations are likely to fall within the ambit of the FTC’s jurisdiction and therefore would be subject to the TSR.

The TSR has always covered calls to induce the purchases of goods and services. Thus, trade and professional associations that are subject to the FTC’s jurisdiction under the California Dental test would be subject to the TSR when making calls to sell goods or services. There is a strong argument that selling a membership is selling a service. Thus, calls to sell memberships would be subject to the TSR.

As a result of legislation passed after September 11, the FTC now has authority to regulate calls not just for the sale of goods or services but also for the solicitation of "charitable contributions." The FTC recognized that this law does not change its lack of jurisdiction over nonprofit entities; it has stated that it will apply the TSR to solicitations made on behalf of nonprofits by for-profit telemarketing service bureaus.

Neither the legislation, nor the FTC’s definition of charitable contribution, limit the scope of "charitable contributions" to "charitable" organizations. That is, the definition of charitable contribution – "any donation or gift of money or any other thing of value" – seems to include fundraising efforts by any nonprofit entities including social welfare organizations and trade and professional associations. Although the FTC indicates that a charitable contribution does not include political contributions, it states that, "the TSR applies to all calls that are part of any ‘plan, program, or campaign’ that is conducted by any entity within the FTC’s jurisdiction, involving more than one interstate telephone call for the purpose of inducing a purchase of goods or services or a charitable contribution, donation, or gift of money or any other thing of value." Thus, many fundraising campaigns by social welfare organizations and trade and professional associations will be within the ambit of the TSR.

The Do-Not-Call List

There are several different situations that a trade or professional association may encounter that will determine whether it must abide by a national DNC list. First, all calls to businesses are exempt from the DNC list requirements. Therefore, to the extent that a trade or professional association is making calls to businesses, it need not access and scrub its calling lists. Second, the final amendments (unlike the proposed rule) include an exemption for an established business relationship ("EBR"). The FTC defines EBR as:

a relationship between a seller and a consumer based on:

(1) the consumer’s purchase, rental, or lease of the seller’s goods or services or a financial transaction between the consumer and seller, within the eighteen (18) months immediately preceding the date of a telemarketing call; or

(2) the consumer’s inquiry or application regarding a product or service offered by the seller, within the three (3) months immediately preceding the date of a telemarketing call.

Thus, if a trade or professional association is contacting an existing member at home, it need not abide by the national DNC list. Third, if the association is calling (a home or business) to solicit a contribution, it will not have to access the list; the FTC exempted solicitations from the DNC provisions of the TSR. Thus, the only time an association will have to access the list is if it is calling nonmembers at home for the purpose of selling a good or service (e.g., to sell new memberships).

Other TSR Provisions

There are other provisions of the TSR that will apply to associations in certain circumstances. First, unless the association is calling a business to sell a nondurable good or cleaning supply (an unlikely scenario), it need not abide by the TSR. If it is calling a home, an association will have to comply with the TSR. The TSR distinguishes between the location called, not the person’s role who takes the call. That is, an association may call an individual potential member at his or her place of employment and not comply with the TSR but may not call that person at home without complying. Most of the TSR’s provisions are the same for calls selling goods or services and for calls to solicit contributions.

First, an association must transmit caller-ID information. If an association is using its standard business lines to make a call, this is probably already occurring. Nonetheless, if the association has chosen to have its name or number blocked by its telephone company (an option available to all telephone subscribers), it must stop the blocking when making calls subject to the TSR.

Second, associations must "promptly" disclose the name of the organization, that the purpose of the call is to sell a good or service, and the nature of the goods and services. If the call is to solicit a contribution, the association must disclose the identity of the organization and that the purpose of the call is to solicit a charitable contribution.

Third, the association must provide certain additional disclosures before the person is charged (i.e., before the association obtains credit card account information). The disclosures relevant to an association are the total cost, any material restrictions or limitations, and the refund policy (specifically, if the association does not have one). If the association’s bylaws provide that membership is automatically renewed (and the member is obligated to pay absent his or her cancellation), then the association also must disclose all material terms and conditions of the renewal process. This specifically includes the fact that the member will be charged unless he or she cancels, the date the charge will be submitted for payment, and the specific steps to avoid this charge.

Fourth, associations must obtain the express informed consent to charge the person. This means that an association now must obtain affirmative and unambiguous consent – not merely silence that a person is willing to be charged. Consent is only informed if a person has received all of the disclosures required under the TSR. The FTC also amended the record-keeping provisions of the TSR to require all "records of express informed consent" to be maintained for a period of not less than 24 months.

Fifth, associations must maintain an entity-specific DNC list. If a person asks not to be called again, the association must abide by this request. This is true even if the association has an otherwise valid EBR with that person (e.g., the person is a member).

Finally, there are other requirements such as prohibitions on not making threatening or profane calls and limits as to the times that a person may be called (8:00 a.m. to 9:00 p.m.). There also are other provisions that are not likely to be relevant to associations such as selling account information and the special authorization that is needed when the seller already has a consumer’s account information. The TSR and the accompanying Statement of Basis and Purpose should be consulted in these situations.

In general, for most trade and professional associations, the revisions to the TSR will have only a minor impact on their telemarketing activities. If calling people at their homes (or if the association does not know whether it is a home or business number it is calling), then it will have to comply with the TSR. If the association is using a call center to make calls, it should ensure that the call center is complying with the TSR. Because calls to businesses are exempt, associations should make certain that they have business rather than home contact telephone numbers whenever possible.

For other types of nonprofit entities, such as charities and social welfare organizations, they are exempt from the TSR unless they are using a service bureau. If they are using a bureau, then they will have to comply with the TSR unless the calls are made to business numbers only.

For more information, contact Mr. Jacobs at (202) 216-8215 or at rmjacobs@venable.com.