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Financial Services Law Insights and Observations


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  • FTC, multiple states halt charitable telefunding operation

    Federal Issues

    On March 4, the FTC, together with state attorneys general from 38 states and the District of Columbia, the secretaries of state from Colorado, Georgia, Maryland, North Carolina, and Tennessee, the Florida Department of Agriculture and Consumer Services, and the Utah Division of Consumer Protection (collectively, “plaintiffs”), announced settlements with a telefunding operation whose charitable fundraising calls allegedly collected over $110 million using deceptive solicitations. The plaintiffs’ complaint alleged, among other things, that the defendants engaged in deceptive fundraising by placing more than 1.3 billion prerecorded robocalls to convince consumers to donate to “practically nonexistent charitable programs.” The charitable organizations then paid the defendants typically 80 to 90 percent of every donation, the complaint states, noting that certain defendants knew that almost none of the donations would be spent supporting the charitable programs. The plaintiffs contended that these false or misleading actions violated the FTC Act. Moreover, in many instances, the plaintiffs alleged that the defendants knowingly violated the Telemarketing Sales Rule (TSR) by using soundboard technology to place the telemarketing calls. Using pre-recorded messages in calls to first-time donors is a violation of the TSR, the plaintiffs stated, as is using soundboard technology in calls to prior donors without first disclosing to recipients that they may opt-out of all future calls and providing them with a mechanism to do so.

    Proposed settlements (see here, here, and here) reached with one group of defendants will, among other things, permanently ban them from engaging in any fundraising activities, conducting telemarketing to sell goods or services, or using existing donor information. The defendants will also be required to pay $110,063,848 each, which is either partially or fully suspended due to the defendants’ inability to pay.

    Additionally, proposed settlements reached with the two fundraising company defendants and their senior managers (see here, here, and here) will permanently prohibit them from engaging in any fundraising activities or consulting on behalf of a charitable organization or nonprofit organization claiming to work on behalf of causes similar to those noted in the complaint. These defendants will also be banned from using robocalls connected to telemarketing, engaging in abusive calling practices, or making misrepresentations about a good, service, or contribution. The defendants will further be required to disclose when a donation is not tax deductible. The individual defendants also are required to pay $110,063,843 each, which is partially suspended due to the defendants’ inability to pay, while the two corporate defendants, along with two of the individual defendants, are subject to a partially suspended monetary judgment of $1.6 million.

    Federal Issues FTC Enforcement FTC Act Robocalls Telemarketing Sales Rule State Issues

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  • Court cites 6th Circuit, rules TCPA covers autodialers using stored lists


    On February 25, the U.S. District Court for the Northern District of West Virginia ruled that a satellite TV company cannot avoid class claims that it made unwanted calls to stored numbers using an automatic telephone dialing system (autodialer). The company filed a motion to dismiss plaintiff’s claims that it violated Section 227 of the TCPA when it made illegal automated and prerecorded telemarketing calls to her cellphone using an autodialer. The company argued, among other things, that the “statutory definition of an [autodialer] covers only equipment that can generate numbers randomly or sequentially,” and that “nothing in the complaint plausibly alleges that any of the calls were sent using that type of equipment.” According to the company, list-based dialing cannot be subject to liability under the TCPA. The court disagreed, stating that the TCPA makes it clear that it covers autodialers using stored lists. The court referenced a 6th Circuit decision in Allan v. Pennsylvania Higher Education Assistance Agency, which determined that “the plain text of [§ 227], read in its entirety, makes clear that devices that dial from a stored list of numbers are subject to the autodialer ban.” (Covered by InfoBytes here.) The court also referenced decisions issued by the 2nd, 6th, and 9th Circuits, which all said that the TCPA’s definition of an autodialer includes “autodialers which dial from a stored list of numbers.” However, these appellate decisions conflict with holdings issued by the 3rd, 7th, and 11th Circuits, which have concluded that autodialers require the use of randomly or sequentially generated phone numbers, consistent with the D.C. Circuit’s holding that struck down the FCC’s definition of autodialer in ACA International v. FCC (covered by a Buckley Special Alert). Currently, the specific definition of an autodialer is a question pending before the U.S. Supreme Court in Duguid v. Facebook, Inc. (covered by InfoBytes here). The court further ruled that three out-of-state consumers should be removed from the case as they failed to meet the threshold for personal jurisdiction, and also reiterated that the case could not be arbitrated as the company’s arbitration clause was “unconscionable.”

    Courts TCPA Autodialer Robocalls Appellate Sixth Circuit U.S. Supreme Court

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  • FCC: Contractors must get consent to make robocalls under TCPA

    Federal Issues

    On December 14, the FCC released an order concluding that federal and state contractors are subject to the restrictions of the TCPA and must obtain prior express consent to call consumers. The order reverses a 2016 decision, which extended the presumption that “the word ‘person’ [in the TCPA] does not include the federal government absent a clear ‘affirmative showing of statutory intent to the contrary’” to calls made by contractors acting as agents of the federal government. The FCC acknowledges a number of requests to reconsider this conclusion, and in an effort to combat unwanted robocalls, the FCC now concludes that this presumption should not be extended to contractors. The FCC notes that there is “no longstanding presumption that a federal contractor is not a ‘person’” and the FCC did not “find any ‘context that otherwise requires’ [them] to ignore the express language of the Communications Act’s definition of the term ‘person’ in this situation.” While the presumption still applies to federal and state governments, the order clarifies that local governments are still considered a “person” under the TCPA and therefore, subject to the robocall restrictions without prior express consent.

    Federal Issues FCC TCPA Robocalls

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  • Another district court dismisses TCPA action for lack of jurisdiction


    On October 29, the U.S. District Court for the Northern District of Ohio dismissed a TCPA action against an energy service company and “ten John Doe corporations” (collectively, defendants), concluding that the court lacked jurisdiction over cases involving unconstitutional laws. According to the opinion, the plaintiff filed the putative class action against the defendants alleging the companies violated the TCPA by placing pre-recorded calls to the plaintiff’s cell phone without consent. While the action was pending, on July 6, the U.S. Supreme Court concluded in Barr v. American Association of Political Consultants Inc. (AAPC) that the government-debt exception in Section 227(b)(1)(A)(iii) of the TCPA is an unconstitutional content-based speech restriction (covered by InfoBytes here). The defendants moved to dismiss the action for lack of subject matter jurisdiction and the court agreed. Specifically, the court agreed with the defendants that the severance of Section 227(b)(1)(A)(iii) must be applied prospectively, thus, the statute can only be applied to robocalls made after July 6 and prior to 2015 (when the now unconstitutional government-debt exception in Section 227(b)(1)(A)(iii) was enacted). Because “the statute at issue was unconstitutional at the time of the alleged violations,” the court concluded it lacked subject-matter jurisdiction over the matter and dismissed the action.

    As previously covered by InfoBytes, the U.S. District Court for the Eastern District of Louisiana was the first known court to dismiss a TCPA action based on lack of jurisdiction over calls occurring after the exception’s enactment but prior to the Supreme Court’s decision on July 6.

    Courts TCPA U.S. Supreme Court Robocalls Class Action Subject Matter Jurisdiction

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  • District court: No subject-matter jurisdiction for unconstitutional TCPA section


    On September 28, the U.S. District Court for the Eastern District of Louisiana granted in part and denied in part a motion to dismiss, concluding that the court lacked subject matter jurisdiction in a TCPA action over 129 out of 130 robocalls made prior to the U.S. Supreme Court’s July 6 decision in Barr v. American Association of Political Consultants Inc (AAPC) (covered by InfoBytes here). According to the opinion, the plaintiffs filed a putative class action against a telecommunications company for violating Section 227(b)(1)(A)(iii) of the TCPA, which prohibits robocalls to cell phones without prior express consent. The company moved to dismiss the action, arguing that the Supreme Court decision in AAPC—which concluded the government-debt exception in Section 227(b)(1)(A)(iii) is an unconstitutional content-based speech restriction—makes the alleged violations unenforceable in federal court because the provision was determined to be unconstitutional. In response, the plaintiffs argued that because the Supreme Court’s decision preserved the general ban on robocalls to cellphones by severing “the new-fangled government-debt exception,” the Supreme Court “confirmed that [Section] 227(b)(1)(A)(iii) was constitutional all along.”

    The district court disagreed with the plaintiffs, concluding that during the years that Section 227(b)(1)(A)(iii) permitted robocalls for government-debt collection while prohibiting other categories of robocalls, the entirety of the provision was unconstitutional. The district court noted that the Supreme Court’s opinion in AAPC provided little guidance, only “dicta of no precedential force.” The court looked to Justice Gorsuch’s opinion concurring in part and dissenting in part, noting his reasoning was better “as a matter of law and logic.” Because the entirety of Section 227(b)(1)(A)(iii) was unconstitutional prior to the Supreme Court’s severance of the government-debt exception on July 6, the district court dismissed the action with respect to the alleged TCPA violations that occurred prior to that date, but denied dismissal for the one robocall made after July 6. Lastly, the court granted a stay of the action pending the Supreme Court’s decision in Duguid v. Facebook, Inc (covered by InfoBytes here and here).

    Courts TCPA U.S. Supreme Court Subject Matter Jurisdiction Robocalls

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  • FTC takes action against debt collection schemes


    On August 19, the U.S. District Court for the District of South Carolina lifted the temporary seal of two FTC complaints (available here and here) filed against two groups of debt collection companies and their owners (collectively, “defendants”), alleging that the defendants’ debt collection practices violated the FTC Act and the FDCPA. According to both complaints, which were filed on July 13, the FTC alleges that the defendants engaged in a scheme to collect payments from consumers for debts that they did not actually owe or that the defendants had no authority to collect. Specifically, the defendants used a “two-step collection process,” in which they used robocalls with prerecorded messages to tell consumers they were subject to “an audit or other proceeding.” After the consumers contacted the defendants about the information in the robocalls, the defendants “falsely represent[ed] that they are representatives of a law firm or a mediation company” and falsely alleged that the consumers would be subject to legal action, including arrest, on a delinquent debt if it was not paid. The FTC asserts that the defendants collected over $17 million from the alleged scheme and is seeking, among other things, restitution, injunctions, and asset freezes.

    Courts FTC Debt Collection Enforcement FTC Act FDCPA Robocalls

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  • District court: $925 million statutory damages award not constitutionally excessive


    On August 14, the U.S. District Court for the District of Oregon refused to reduce a $925 million statutory damages award against a company found to have violated the TCPA by sending almost two million unsolicited robocalls to consumers. The company argued that the statutory damages award violates due process because “it is so severe and oppressive as to be wholly disproportionate to the offense and obviously unreasonable.” The court rejected the company’s argument that the penalty was unconstitutionally excessive, noting that the U.S. Court of Appeals for the Ninth Circuit has not yet answered the question as to “whether due process limits the aggregate statutory damages that can be awarded in a class action lawsuit under the TCPA.” Instead, the district court concluded that the allowance for at least $500 per violation under the TCPA is constitutionally valid and that the penalty’s “large aggregate number comes from simple arithmetic.” Referencing an opinion issued by the U.S. Court of Appeals for the Seventh Circuit, the court reasoned that “[s]omeone whose maximum penalty reaches the mesosphere only because the number of violations reaches the stratosphere can’t complain about the consequences of its own extensive misconduct.” Thus, the court rejected the company’s argument that the aggregate damages award should be reduced, finding that due process does not require the reduction of the aggregate statutory award where the company violated the TCPA nearly two million times.

    Courts Robocalls TCPA Settlement

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  • FCC provides safe harbors for blocking illegal robocalls

    Privacy, Cyber Risk & Data Security

    On July 16, the FCC issued an order adopting rules to further encourage phone companies to block illegal and unwanted robocalls and to continue the Commission’s implementation of the TRACED Act (covered by InfoBytes here). The rule establishes two safe harbors from liability for the unintended or inadvertent blocking of wanted calls: (i) voice service providers will not be held liable under the Communications Act and FCC rules on terminating voice service providers that block calls, provided “reasonable analytics,” such as caller ID authentication information, are used to identify and block illegal or unwanted calls; and (ii) voice service providers will not be held liable for blocking calls from “bad-actor upstream voice service providers that continue to allow unwanted calls to traverse their networks.” The FCC’s order also includes a Further Notice of Proposed Rulemaking seeking comments on, among other things, “whether to obligate originating and intermediate providers to better police their networks against illegal calls,” whether the “reasonable analytics” safe harbor should be expanded “to include network-based blocking without consumer opt-out,” and whether the Commission should adopt more extensive redress requirements, and require terminating providers to provide consumers information about blocked calls.

    Privacy/Cyber Risk & Data Security FCC Robocalls TRACED Act

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  • District court preliminarily approves $6.8 million TCPA settlement


    On July 6, the U.S. District Court for the Eastern District of California granted preliminary approval to a nearly $6.8 million settlement between class members and a collection agency that allegedly violated the TCPA, FDCPA, and California’s Rosenthal Fair Debt Collection Practices Act by making calls using an autodialer or prerecorded voice in an attempt to collect purported debts. The lead plaintiff filed a proposed class action suit in 2016 against the collection agency claiming he received at least 25 calls to his cell phone even though he never consented to receiving such calls in the first place and had instructed the collection agency to stop calling him.

    According to the court’s order, the settlement consists of two sub-classes: (i) one class of individuals from anywhere in the U.S. who subscribed to call management applications and received automated calls from the defendant without providing the proper consent; and (ii) another class of individuals living in California who received automated calls from the defendant regarding their purported debts. The terms of the settlement provides for a $1.8 million cash fund and requires the forgiveness of nearly $5 million in outstanding debts for class members with existing accounts owned by either the collection agency or one of its affiliates.

    Courts Robocalls Settlement Class Action State Issues Autodialer TCPA FDCPA

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  • State AGs emphasize the importance of robocall traceback work

    State Issues

    On June 4, 52 state attorneys general, through the National Association of Attorneys General, submitted reply comments to the FCC in support of an April final rule, which amends and adopts its rules in accordance with Section 13(d) of the Pallone–Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (TRACED Act) to create a single registered consortium that serves as a neutral third party to manage the private-led efforts to trace back the origin of unlawful robocalls. In the letter, the attorneys general emphasized the importance of traceback efforts to assist law enforcement in identifying and investigating illegal robocallers more efficiently. Moreover, the attorneys general note that traceback investigations help “shed light” on other actors in the “telecommunication ecosystem” that may support robocall scammers. Similarly, in May, the attorneys general, also through the National Association of Attorneys General, published a letter to industry groups asserting their intention to intensify enforcement efforts against illegal robocallers, and urged the US Telecom and the Industry Traceback Group to expand capabilities related to tracebacks in anticipation of growth in the need for data analysis and the number of civil investigative demands and subpoenas that will be issued directly to the Industry Traceback Group (covered by InfoBytes here).

    State Issues State Attorney General Robocalls FCC TRACED Act Enforcement

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