Federal Court Strikes Down FTC’s National Do-not-call List, Allows Other Telemarketer Regulations

Several groups representing telemarketing firms sued the Federal Trade Commission (FTC) in the District Court for the Western District of Oklahoma. The suit challenges the FTC’s legal authority to enforce three measures the FTC promulgated under its Telemarketing Sales Rule (TSR):
1) establishing a national do-not-call registry
2) prohibiting telemarketing calls where the person receiving the call is not connected to a representative within two seconds of the person’s completed greeting
3) requiring telemarketers to obtain an audio recording of a person providing the last four digits of the account number to be charged and express agreement to be charged before actually charging a pre-acquired account

The court granted the plaintiffs’ motion in part and enjoined the FTC from enforcing the do-not-call measure. The court granted the FTC’s cross-motion for summary judgment in the matters of the regulation of abandoned calls and using pre-acquired account information, allowing them to enforce the regulations.

The Telemarketing and Consumer Fraud and Abuse Prevention Act (TCFAP) directed the FTC to create rules to prevent deceptive and abusive telemarketing practices. The FTC asserted that it had established all measures in the TSR under authority granted in the TCFAP.

First, the plaintiffs claimed that the FTC did not have the authority to promulgate a national do-not-call registry. Congress had previously authorized the Federal Communications Commission (FCC) to create such a registry under the Telephone Consumer Privacy Act (TCPA). Therefore, the telemarketing representatives argued, the TCFAP could not implicitly grant the same authority to the FTC. The FTC argued that because any call to a number on such a list would be abusive under the TCFAP, regulating such activity was authorized, rendering the overlapping jurisdiction of the FCC and FTC acceptable. The court reasoned that absent specific and clear instructions from Congress, two agencies could not have the authority to regulate the same areas of the economy, and since Congress had specifically given the authority to the FCC, it had not given that same authority to the FTC.

The plaintiffs then argued that the FTC’s attempt to place restrictions on abandoned calls conflicted with the FCC’s authority to regulate automated dialing systems (the use of which results in the abandoned calls), which had been granted by Congress under the TCPA. The FTC argued that the abandoned calls qualified as “coercive or abusive” telemarketing acts, and so the regulation of these acts was directly authorized under the TCFAP. The court held that the FCC’s ability to regulate the dialing machines did not conflict with the FTC’s ability to regulate the calling practices which involved their use.

Finally, the plaintiffs claimed that the FTC’s restrictions on using pre-acquired account information was an invalid regulation of unfair business practices because the FTC had not followed the statutorily-imposed process for declaring such a practice to be “unfair” before regulating it. In addition, they argued that the changes between the proposed regulation and the final regulation were so large that telemarketers were not given a sufficient chance to comment on the regulation before it was passed. The FTC argued that they were not classifying the current practices as “unfair”, but regulating a telemarketing practice defined as “abusive” under TCFAP. They also argued that the changes made to the statute after the comment period still addressed the original issues, and so the final version was similar enough that another comment period was unnecessary. The court accepted the FTC’s position that, in addition to the acts actually being “unfair”, the FTC’s qualification of the telemarketing practice as “abusive” under the TCFAP was sufficient to allow regulation. In addition, since the final version of the regulation was a “logical outgrowth” of the original, no additional comment period was necessary.

Immediately after this decision, Congress passed a law explicitly granting the FTC the authority to create the do-not-call registry. However, the United States District Court for the District of Colorado held that the do-not-call registry violates the First Amendment of the U.S. Constitution by differentiating between speech by commercial and charitable telemarketers, and again enjoined the FTC from enforcing the registry. Since then, the FCC has announced that it would start enforcing the do-not-call list, as it is not bound by the Colorado decision regarding the FTC.

2003 U.S. Dist. LEXIS 16650.

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