Consumer Corner: Billions in Penalties for Telemarketing Violations Would Get Attention

By Alan Marx, AARP TN Fraud Correspondent

The federal “Do-Not-Call Registry” will be 13 years old in March. It was established by the Federal Trade Commission (“FTC”) to comply with the Telephone Consumer Protection Act of 1991. Since 2005 telemarketers covered by the law have had up to 31 days from the date a number is registered to cease calling that number. FCC regulations prohibit telemarketers from calling cellular phone number with automatic dialers, often referred to as “robocallers.” Certain specified types of callers, such as political organizations, not-for-profits, surveys, and businesses with which consumers have a pre-existing relationship, are not covered by the law.

Unsolicited solicitation calls from telemarketers are intrusive, offensive, and, in some instances, abusive or harassing. The law undoubtedly has cut down on the number of unwanted calls, but unfortunately only from businesses who care and who take steps to comply. The continuing volume of telemarketing calls is proof that many telemarketers simply ignore the law. When these scofflaws are individuals or small business operators, the enforcement authorities often are unable to locate them and in many instances are unable to build a case to stop them.

“Rachel from Cardholder Services”
In March of 2014 this blog featured an article entitled “ Spies and Robocallers Are Trying to Reach You.”  One of the scams described in that article is known as “Rachel from Cardholder Services” featuring persistent callers who offered to conduct an “audit” to lower consumers’ credit card interest rates. The FTC says the “audit” typically is used to see if consumers have enough available credit on their credit cards to pay the telemarketing company’s fee. If consumers provide the requested information and are “approved,” the Cardholder Services representative asks for an up-front fee, which ranges from several hundred dollars to more than $3,000, sometimes promising that that there is no risk involved and that the fee is refundable. The FTC says people are unlikely to ever see a refund.

The 2014 article reported on a successfully action by the FTC against a group of defendants for running the “Rachel” scam.   The then Chairman of the FTC said “At the FTC, Rachel from Cardholder Services is public enemy number one.”

Unfortunately, “Rachel from Cardholder Services” is still calling. Last week, while preparing this blog, I received a robocall from a “Rachel.” The FTC’s enforcement did not end the problem because the “Rachel from Cardholder Services” scam is not run by one company. It is based on an audio clip, probably an MP3 that shady individuals and companies download from the internet so they can run the scam for themselves. There are countless “Rachel” operators, and neither the FTC nor any other enforcement agency has found or is likely to find all of them.

There is more reason for hope when a national company is the perpetrator. With this as a preamble, let’s look at a pending court challenge by the federal government and four states that, if successful, would have a major impact against a national telemarketer.

Not a Tasty Dish

In March 2009 the U.S. Department of Justice, acting at the request of the FTC, filed a complaint against the Dish Network, LLC, in the U.S. District Court for the Central District of Illinois. The complaint charged the Dish, formerly known as EchoStar, with multiple violations of the Telephone Consumer Protection Act and the FTC’s Telemarketing Sales Rule. In addition, four states, California, Illinois, Ohio, and North Carolina, sued as co-plaintiffs, alleging violation of their state laws.

Dish markets its service directly, through contracts with telemarketing vendors, and through authorized dealers or retailers. Allegedly Dish initiated or caused its telemarketers, vendors, and dealers or retailers to initiate calls to telephone numbers listed on the “Do Not Call Registry.”

In a ruling on a motion for partial summary judgment the District Court found Dish or its vendors made 4,094,099 calls and its retailers made 2,730,842 calls to telephone numbers on the “Do Not Call Registry.” Dish was held liable for the retailers’ calls because it retained the retailers, authorized them to market Dish products and services, and the retailers then initiated Dish telemarketing calls to telephone numbers on the Registry. The Court ruled that 1,043,595 of the calls were made to consumers whose telephone numbers were on Dish’s internal do-not-call list or were marked “DNC” by Dish’s telemarketing vendor. The Telemarketing Sales Rules also restrict abandoned calls (calls that ring the consumer’ telephone, but are abandoned before the consumer answers), and the Court found that Dish and three of its retailers abandoned 49,738,073 calls in violation of the Rules. The total number of illegal telemarketing calls was 57,606,609.

According to the FTC, under the Telemarketing Sales Rule “But I wasn’t the one doing the dialing” is not a defense. While there is a “safe harbor” defense that excuses certain inadvertent violations, the District Court ruled that Dish did not meet that defense because it failed to demonstrate that

1. it had written procedures in place to comply with Do Not Call;
2. it trained its staff on how to abide by the law;
3. it monitored and enforced compliance;
4. it maintained – and honored – a company-specific Do Not Call list;
5. it accessed the Registry no more than 31 days before calling any consumer, and maintained records documenting the process; and
6. calls made in violation of Do Not Call were the result of error.

Penalties for violation of the federal law are calculated on a per call basis. Dish said the federal government was seeking almost $900 million in fines. Dish called the amount sought by the federal government “shocking.” It said the U.S. was satisfied with much lower fines against one of the retailers and the telemarketing firm responsible for most of the calls at issue. The combined penalties against those two companies amounted to $12.2 million, or 10 to 15 cents per call. Dish said that amount was reduced to $225,000 based on the inability of those companies to pay.

Dish’s problem with the federal claim is just the beginning of its troubles. The four states that joined the U.S. in the lawsuit are seeking as much as $23.5 billion in penalties, which is about $848 million more than the company’s total market capitalization. Dish also said most of the challenged calls were made almost 10 years ago and that it has improved its compliance since then.

Trial on the case is pending.

Conclusion
Telemarketing, even legal telemarketing, infuriates many people. The callers know that the prime times to call are during your dinner and in the early evening, so like mosquitos the number of calls increases from about 5 p.m. to 8 or 8:30 p.m.   Asking the caller not to call your number again is a waste of time. Although you can include your cell phone number in the Do Not Call Registry, recently people have reported that they are receiving more telemarketing calls on their cell phones.

A successful federal and state enforcement action against a major national company would have a deterrent effect, as long as the amount of money at stake is too large to write off as a cost of doing business. While it will not completely solve the problem, at least it will focus the attention of the business community on the matter.

Consumer Reports is taking a different approach. It has tried to get the telephone companies to implement call blocking technology that already exists, so that consumers could selectively bar callers. That campaign is currently underway, but so far it has not achieved its goal. If you'd like to get involved and support this effort, sign the online petition and let officials know you're against robocalls to cell phones.