October 23, 2021

Volume XI, Number 296

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October 22, 2021

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October 21, 2021

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The FTC, Lead Generation and Increased Enforcement of the Telemarketing Sales Rule

The Federal Trade Commission continues to investigate and enforce violations of the Telemarketing Sales within the lead generation industry, including lead generators that “assist and facilitate” sellers or telemarketers that violate the TSR.

Recent FTC Civil Investigative Demands to lead generators illustrate that the FTC may now be resurrecting the issue of the application of the TSR’s “established business relationship” exemption to an Internet-based lead generation mechanism.  More specifically, whether the EBR exemption applies to a service provider that initiates a telephone call to a consumer based on contact information the service provider obtains from a lead generator.

Oftentimes, FTC CID lawyers take the position that the service provider does not have an EBR with a consumer who responds to a lead generator’s solicitation and therefore would not be entitled to claim the EBR exemption.  However, the FTC may not necessarily recommend a Do Not Call enforcement action against a service provider that calls consumers who have responded to a lead generator’s solicitation if, as described more fully below, the lead generator makes full and adequate prior disclosure of certain material facts about the consequences of responding to such solicitations.

Section 310.4(b)(1)(iii) of the TSR provides, among other things, that it is a violation of the Rule to initiate any outbound telemarketing call to a person when that person’s telephone number is on the National Do Not Call Registry unless the seller has an EBR with such person. See 16 C.F.R. § 310.4(b)(1)(iii).

The Rule defines an 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 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. 16 C.F.R. § 310.2(n).

In the lead generation context, typically there exists an Internet-based mechanism that generates leads for service providers.  The consumer visits a website that offers to arrange for several service providers to compete for the consumer’s business.  Before the consumer submits an inquiry, the website may disclose approximately how many service providers are likely to respond.  The names of those service providers may not be disclosed at that point, however, because they have not yet been determined.  The website may have a network of dozens or even hundreds of service providers who may be asked to respond to a consumer’s inquiry with proposed terms.  The service provider’s names are disclosed to the consumer when the service providers contact the consumer to present terms.

The consumer is asked to submit contact information with his/her inquiry.  Typically, this includes an email address and telephone number.  Some websites may expressly disclose that contact information is collected so that service providers can respond to the consumer.

According to the FTC, a service provider that receives a consumer’s contact information from such a lead generation mechanism generally does not have an EBR with the consumer.  It is the FTC’s position that the TSR provides that, for the EBR exemption to apply, the service provider must itself have a relationship with the consumer.  In other words, it is the lead generator, not the service provider, that has an inquiry-based established business relationship with the consumer.

However, depending upon the specific scenario, the FTC may consider the consumer’s reasonable expectations of receiving the call when assessing the applicability of the EBR exemption to the TSR.  Does the consumer receive a call from a company that would likely come as a surprise and be inconsistent with having placed their telephone number on the national DNC registry?

Thus, the question is whether the consumer in the aforementioned scenario has a reasonable expectation of receiving calls from service providers who receive his/her name and telephone number from a lead generator.  The FTC believes that the consumer’s expectation of privacy is such that, if she receives (i) calls from service providers when he/she does not expect to receive such calls, (ii) calls from an infinite number of service providers when he/she only expects to receive calls from a few, or (iii) calls from service providers whose identities are not linked in his/her mind to his/her online inquiry, he/she will be surprised, and find such calls invasive of his/her privacy and contrary to the promised protection of the National Do Not Call Registry.

However, the consumer expects to receive some calls as a result of his/her visit to the website.  In view of these considerations, FTC staff sometimes believes that the FTC should exercise discretion in evaluating the use of lead generators by service providers.  As long as the lead generator provides the consumer with certain material disclosures, FTC staff may not recommend filing a Do Not Call enforcement action against the service provider.  Specifically, staff may not recommend taking such action if the lead generator clearly and conspicuously discloses to the consumer, before the consumer divulges his/her telephone number, both that the consumer may receive telemarketing calls as a consequence of submitting his/her telephone number, and the maximum number of entities from which the consumer may receive these calls. 

Interestingly, the FTC may take issue with a lead generator referring consumers to a lengthy list of hundreds or thousands of service providers that may contact the consumer. 

The FTC prefers that the consumer, if possible, be informed of the identities of the service providers who may call the consumer before the consumer receives any such calls.  This disclosure should be made in a manner likely to be seen and understood by the consumer, in light of the medium used to induce the consumer to submit his/her information to the lead generator.

Consistent with the TSR, the lender may only initiate an outbound call to the consumer within three months of the date of the consumer’s inquiry to the lead generator. 

Of course, lead generators themselves that capture and transmit telephone numbers in this scenario face scrutiny and potential enforcement for assisting and facilitating sellers or telemarketers that violate the TSR’s robocall and DNC provisions.

The FTC often focuses its investigations and enforcement actions on lead generation websites that are, in reality, “consent farms,” and purport to gather consent for robocallers and ultimately sell such data for a variety of purposes that the agency considers to be illegitimate.

© 2021 Hinch Newman LLPNational Law Review, Volume XI, Number 253
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About this Author

Richard Newman, FTC Defense Lawyer, Internet Marketing, Hinch Newman Law Firm

Richard B. Newman is a nationally recognized FTC defense lawyer and advertising compliance attorney.  He regularly provides advertising counsel and represents clients in high-profile investigations (CIDs) and enforcement proceedings initiated by the Federal Trade Commission, state attorneys general, departments of consumer affairs, and other federal and state agencies with jurisdiction over advertising and marketing practices.  Richard’s practice also concentrates upon transactional matters relating to the dissemination of national advertising campaigns, including the...

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