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Pennsylvania sues lead generator for facilitating telemarketers’ robocalls
On November 3, the Pennsylvania attorney general announced a lawsuit against a New York-based lead generation company that connects advertisers to potential new customers through the consumers’ personal data for allegedly causing hundreds of thousands of robocalls to be placed to consumers in the Commonwealth. The defendant, along with several of its subsidiaries, allegedly collected personal information, including phone numbers and personal information of consumers on Pennsylvania’s Do Not Call List, that was then sold to telemarketing companies. According to the complaint, the defendants allegedly engaged in deceptive and misleading business practices in connection with their lead-generation practices, by obtaining consumers’ information through various promotional opportunities without clearly disclosing that by providing their contact information, consumers were consenting to receiving telemarketing calls from hundreds of potential sellers. The complaint alleges that from 2018 to 2021, over 4.2 million Pennsylvania consumers registered their information on one of the defendants’ websites. “Under the [Telemarketing Sales Rule (TSR)], a consumer’s express agreement to accept calls delivering a prerecorded message may not be obtained by a lead generator, who is not a seller or a telemarketer. The express agreement must be obtained directly by the seller or telemarketer from the consumer,” the complaint said. Moreover, even if the defendants were not directly making the telemarketing calls themselves, assisting and facilitating the calls is itself a violation of the rules, the complaint noted.
The defendants are charged with violating several federal and state telemarketing laws, including the TSR, and Pennsylvania’s Telemarketer Registration Act (TRA) and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. The AG’s office seeks a declaration permanently enjoining the defendants from violating the telemarketing and consumer protection laws, along with civil penalties of $1,000 per violation and $3,000 per violation involving a victim age 60 or older. The suit also seeks disgorgement, costs, and a permanent bar on selling consumer data collected in violation of the TSR and TRA.
9th Circuit says telemarketing texts sent to mixed-use cells phones fall under TCPA
On October 12, a split U.S. Court of Appeals for the Ninth Circuit reversed a district court’s dismissal of a TCPA complaint, disagreeing with the argument that the statute does not cover unwanted text messages sent to businesses. Plaintiffs (who are home improvement contractors) alleged that the defendants used an autodialer to send text messages to sell client leads to plaintiffs' cell phones, including numbers registered on the national do-not-call (DNC) registry. The plaintiffs contented they never provided their numbers to the defendants, nor did they consent to receiving text messages. The defendants countered that the plaintiffs lacked Article III and statutory standing because the TCPA only protects individuals from unwanted calls. The district court agreed, ruling that the plaintiffs lacked statutory standing and dismissed the complaint with prejudice.
On appeal, the majority disagreed, stating that the plaintiffs did not expressly consent to receiving texts messages from the defendants and that their alleged injuries are particularized. In determining that the plaintiffs had statutory standing under sections 227(b) and (c) of the TCPA, the majority rejected the defendants’ argument that the TCPA only protects individuals from unwanted calls. While the defendants claimed that by operating as home improvement contractors the plaintiffs fall outside of the TCPA’s reach, the majority determined that all of the plaintiffs had standing to sue under § 227(b), “[b]ecause the statutory text includes not only ‘person[s]’ but also ‘entit[ies].’” With respect to the § 227(c) claims, which only apply to “residential” telephone subscribers, the appellate court reviewed whether a cell phone that is used for both business and personal reasons can qualify as a “residential” phone. Relying on the FCC’s view that “a subscriber’s use of a residential phone (including a presumptively residential cell phone) in connection with a homebased business does not necessarily take an otherwise residential subscriber outside the protection of § 227(c),” and “in the absence of FCC guidance on this precise point,” the majority concluded that a mixed-use phone is “presumptively ‘residential’ within the meaning of § 227(c).”
Writing in a partial dissent, one judge warned that the majority’s opinion “usurps the role of the FCC and creates its own regulatory framework for determining when a cell phone is actually a ‘residential telephone,’ instead of deferring to the FCC’s narrower and more careful test.” The judge added that rather than “deferring to the 2003 TCPA Order which extended the protections of the national DNC registry to wireless telephones only to the extent they were similar to residential telephones, a reasonable interpretation of the TCPA, the majority has leaped over the FCC’s limitations to provide its own, much laxer, regulatory framework and procedures that broadly allow anybody who owns a cell phone to sue telemarketers under the TCPA.”
FTC takes action against telemarketing operation
On May 25, the FTC announced an action resolving allegations against a subscription scam operation and its officers (collectively, “defendants”) that allegedly deceptively used telemarketing schemes on consumers. According to the complaint, which was filed in the U.S. District Court for the District of Nevada, the defendants allegedly violated the FTC Act and the Telemarketing Sales Rule (TSR) by calling consumers to claim that they were conducting a survey and offering “free” or low-cost magazine subscriptions. After the survey, the defendants allegedly sent consumers a bill falsely stating that they agreed to pay several hundred dollars for the magazine subscriptions. According to the FTC, there was a “no-cancellation policy,” and the defendants allegedly harassed consumers when they refused to pay the exorbitant bills, including by threatening to initiate collection actions or threatening to submit derogatory information about them to the major credit bureaus. The proposed order follows a 2010 permanent injunction that was entered against the same defendants, which prohibited them from committing future violations. The recent order requires the defendants to pay a suspended judgment of $14.4 million and requires them to give up all claims to money already paid to the FTC. Additionally, the defendants are required to monitor their compliance with the proposed order “and may face significant contempt remedies if they violate its terms.” The FTC noted that the original monetary relief was vacated after the Supreme Court’s decision in AMG Capital Management LLC v. FTC, which limited the FTC’s ability to obtain monetary relief in federal court (covered by InfoBytes here). The FTC pointed out that the “settlement of this matter for a suspended judgment of $14.47 million, after originally having been awarded $24 million at trial, demonstrates the challenges since the Supreme Court’s AMG decision.”
FTC proposes TSR amendments to extend robocall protections
On April 28, the FTC proposed rulemakings to extend protections for small businesses against telemarketing business-to-business schemes and strengthen safeguards to protect consumers from other telemarking scams. Both the notice of proposed rulemaking (NPR) and advance notice of proposed rulemaking (ANPRM) stem from the FTC’s regulatory review of the Telemarketing Sales Rule (TSR) and address public comments received as part of the review.
The NPR proposes to amend TSR recordkeeping requirements to require telemarketers to retain seven new categories of information related to their telemarketing activities, including records concerning each unique prerecorded message, records sufficient to show the established business relationship between a seller and a consumer, records of the service providers used by a telemarketer to deliver outbound calls, and records of the FTC’s Do Not Call Registry that were used to ensure compliance with this rule. Additionally, the NPR seeks comments on whether the FTC should amend the TSR to prohibit material misrepresentations and false or misleading statements in business-to-business telemarketing transactions to prevent harm caused by deceptive telemarketing, and proposes adding a definition of “previous donor” related to charitable donation solicitations.
The ANPRM seeks comments on a range of issues related to whether calls related to tech-support scams should be covered by the TSR, whether telemarketers should be required to provide consumers with a simple click-to-cancel process when they sign up for subscription plans, and whether the TSR should stop treating telemarketing calls made to businesses differently from those made to consumers. According to the FTC, robocalls made to businesses are generally exempt from certain TSR provisions.
Comments on both proposed rulemakings are due 60 days after publication in the Federal Register.
FTC takes action against day-trading company for deceptive sales techniques
On April 19, the FTC filed a complaint against a day-trading investment company and its CEO alleging the defendants violated the FTC Act and the Telemarketing Sales Rule (TSR) in connection with the company’s investment opportunities. According to the complaint, the Massachusetts-based defendants promote day-trading investments online and sell programs promising to show consumers how to earn substantial profits in a short time period. The FTC contends that the defendants promote these so-called “profitable” and “scalable” trading strategies to consumers through allegedly deceptive sales pitches and inform consumers that their strategies are effective even with initial investments as small as $500. However, the FTC claims that 74 percent of customers’ accounts actually lost money and that only 10 percent of the accounts earned more than $90.
Under the terms of the proposed stipulated order, the defendants are required to pay $3 million in consumer redress and are permanently restrained and enjoined from making unsubstantiated earnings claims concerning consumers’ potential to earn money using their trading strategies regardless of the amount of capital invested or the amount of time spent trading. Defendants are also prohibited from violating federal law, or from making any misrepresentations about investment opportunities, including misrepresentations in connection with telemarketing regarding the amount of “risk, liquidity, earnings potential, or profitability of goods or services that are the subject of a sales offer.”
11th Circuit affirms $23 million judgment against founder of debt relief operation
On March 9, the U.S. Court of Appeals for the Eleventh Circuit affirmed summary judgment in favor of the FTC and the Florida attorney general after finding that an individual defendant could be held liable for the actions of the entities he controlled. As previously covered by InfoBytes, the FTC and the Florida AG filed a complaint in 2016 against several interrelated companies and the individual defendant who founded the companies, alleging violations of the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act. The complaint alleged that the defendants engaged in a scheme that targeted financially distressed consumers through illegal robocalls selling bogus credit card debt relief services and interest rate reductions. Among other things, the defendants also claimed to be “licensed enrollment center[s]” for major credit card networks with the ability to work with a consumer’s credit card company or bank to substantially and permanently lower credit card interest rates and charged up-front payments for debt relief and rate-reduction services. In 2018, the court granted the FTC and the Florida AG’s motion for summary judgment, finding there was no genuine dispute that the individual defendant controlled the defendant entities, that he knew his employees were making false representations, and that he failed to stop them. The court entered a permanent injunction, which ordered the individual defendant to pay over $23 million in equitable monetary relief and permanently restrained and enjoined the individual defendant from participating—whether directly or indirectly—in telemarketing; advertising, marketing, selling, or promoting any debt relief products or services; or misrepresenting material facts.
The individual defendant appealed, arguing that there were genuine disputes over whether: (i) he controlled the entities; (ii) he had knowledge that employees were making misrepresentations and failed to prevent them; (iii) employee affidavits “attesting that they had saved customers money created an issue of fact about whether his programs did what he said they would do”; and (iv) he had knowledge of “rogue employees” violating the “do not call” registry to solicit customers.
On appeal, the 11th Circuit determined that the facts presented by the individual defendant did not create a genuine dispute about whether he controlled the entities, and further stated that the individual defendant is liable for the employees’ misrepresentations because of his control of the entities and his knowledge of those misrepresentations. The appellate court explained that while the individual defendant argued that he could not be liable because he did not participate in those representations, he failed to present any evidence in support of that argument and, even if he had, “it wouldn’t matter, because [the individual defendant’s] liability stems from his control of [the companies], not from his individual conduct.” Additionally, the appellate court held that whether the services were helpful to customers was immaterial and did not absolve him of liability, because liability for deceptive sales practices does not require worthlessness. As to the “do not call” registry violations, the appellate court disagreed with the individual defendant’s claim that an “outside dialer or lead generator”—not the company—placed the outbound calls, holding that this excuse also does not absolve him of liability.
CFPB bans payment processor for alleged fraud
On January 18, the CFPB filed a proposed stipulated judgment and order to resolve a complaint filed last year against an Illinois-based third-party payment processor and its founder and former CEO (collectively, “defendants”) for allegedly engaging in unfair practices in violation of the CFPA and deceptive telemarketing practices in violation of the Telemarketing Act and its implementing rule, the Telemarketing Sales Rule. As previously covered by InfoBytes, the CFPB alleged that the defendants knowingly processed remotely created check (RCC) payments totaling millions of dollars for over 100 merchant-clients claiming to offer technical-support services and products, but that actually deceived consumers—mostly older Americans—into purchasing expensive and unnecessary antivirus software or services. The tech-support clients allegedly used telemarketing to sell their products and services and received payment through RCCs, the Bureau claimed, stating that the defendants continued to process the clients’ RCC payments despite being “aware of nearly a thousand consumer complaints” about the tech-support clients. According to the Bureau, roughly 25 percent of the complaints specifically alleged that the transactions were fraudulent or unauthorized.
If approved by the court, the defendants would be required to pay a $500,000 civil penalty, and would be permanently banned from participating in or assisting others engaging in payment processing, consumer lending, deposit-taking, debt collection, telemarketing, and financial-advisory services. The proposed order also imposes $54 million in redress (representing the total amount of payments processed by the defendants that have not yet been refunded). However, full payment of this amount is suspended due to the defendants’ inability to pay.
Meal-kit delivery service reaches $14 million TCPA class action settlement
On October 15, the U.S. District Court for the District of Massachusetts granted final approval to a $14 million TCPA class action settlement, resolving allegations that a meal-kit delivery service (or its vendor) placed telemarketing calls to customers’ phone numbers. Class members consist of customers who (i) received one or more calls placed using a dialing platform; (ii) received at least two telemarketing calls during any 12-month time period where their phone numbers were on the National Do Not Call Registry for at least 31 days before the call was placed; and/or (iii) received one or more calls after registering their phone numbers with the company’s internal do-not-call list. As part of the $14 million settlement, class counsel will receive more than $3.4 million in attorneys’ fees and costs and the settlement administrator will receive $450,000. Two named plaintiffs will receive service payments of $10,000 each, while another seven named plaintiffs will each receive service payments ranging from $2,000 to $5,000.
District Court allows CFPB, Massachusetts AG’s telemarketing suit to proceed
On August 10, the U.S. District Court for the District of Massachusetts denied a motion to dismiss filed by a credit repair organization and the company’s president and owner (collectively, “defendants”) in a joint action taken by the CFPB and the Massachusetts attorney general, which alleged the defendants committed deceptive acts and practices in violation of the Consumer Financial Protection Act (CFPA), the Massachusetts Consumer Protection Law, and the FTC’s Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, the complaint alleges the defendants, among other things, claimed their credit-repair services could help consumers substantially improve their credit scores and promised to fix “unlimited” amounts of negative items from consumers’ credit reports, but, in “numerous instances,” the defendants failed to achieve these results. The defendants also allegedly violated the TSR by engaging in abusive acts and by requesting and collecting fees before achieving any results related to repairing a consumer’s credit. The defendants moved to dismiss, arguing that they were governed by the Credit Repair Organizations Act (CROA), which cannot be reconciled with the TSR, the TSR definition of “telemarketing” is vague and violates the Due Process Clause, and that applying the TSR’s definition of telemarketing would place an unfair content-based restriction on speech that restricts when they can collect payments for their services. Moreover, the defendants claimed, among other things, that the FTC “exceeded its authority in promulgating rules targeting their conduct because Congress intended that only unsolicited telemarketing calls would be addressed by the FTC’s regulations.”
The court disagreed, holding first that that the CROA and the TSR do not conflict. “[C]ompliance with the TSR’s payment requirement would not cause defendants to violate the CROA,” the court stated. “The TSR simply adds a precondition to requesting payment…” Additionally, the court noted that the TSR’s “restriction is on conduct—the timing of the payment—not on speech,” adding that while “Congress directed the FTC to create rules regarding specific telemarketing activities. . ., Congress also authorized the FTC to create additional rules addressing ‘deceptive telemarketing acts or practices’ at its discretion.” As such, the court held that defendants did not show that “Congress intended the FTC to exclusively address unsolicited telemarketing calls.” Furthermore, the court held that the plaintiffs adequately defined the defendants’ allegedly deceptive conduct and that the alleged violations of state law are plausible.
New York expands definition of telemarketing to include text messages
On July 13, the New York governor signed S.3941, which expands the state’s definition of telemarketing to include marketing by text message. A press release issued by the governor noted that expanding the definition closes a loophole in state law that previously limited the definition to phone calls, including unwanted robocalls. “Electronic text messages to [] mobile devices have become the newest unwelcomed invasive marketing technique. Consumers should not be burdened with excessive and predatory telemarketing in any form, including text messages,” the press release stated. The act takes effect 30 days after becoming law.