Telemarketing allows many legitimate companies—including charities—to offer, publicize, or solicit for their products or services. Computers, credit cards, and toll-free telecommunications have made at-home shopping convenient for many people, especially older consumers and consumers with disabilities.
Yet this technology also helps fraudulent telemarketers reach a vast pool of potential victims. The National Consumers League estimates that 46 percent of scam victims were first contacted by telephone in 2015, a 10 percent increase over 2013. Unscrupulous telemarketers sell inferior merchandise. They misrepresent and fail to deliver goods. They bill for fraudulent charges.
Several federal laws and regulatory rulings deal with telemarketing fraud. The 1994 Telemarketing and Consumer Fraud and Abuse Prevention Act and the Telemarketing Sales Rule (TSR), issued by the Federal Trade Commission (FTC) in 1995, provide tools for law enforcement and consumers to reduce telemarketing abuses and obtain redress for fraud. Since then, telemarketing has remained on the FTC’s radar; in calendar year 2014, “Telephone and Mobile Service” complaints ranked fourth among consumer complaints collected by the FTC, falling below “Imposter Scams” and above “Banks and Lenders.”
States are allowed to enforce the TSR in federal court and seek remedies against telemarketing fraud nationwide. The rule does not address all practices, however. It fails to prohibit many abuses, such as courier pickups and online fraud. The Telemarketing Fraud Prevention Act of 1998 addresses some of the jurisdictional problems involved in combating telemarketing fraud that originates beyond US borders. In 2008, the FTC addressed prerecorded messages, and in 2010, it addressed practices associated with debt-relief services.
Courts have generally supported efforts to deal with fraudulent telemarketing. In 2003 the US Supreme Court unanimously ruled in Illinois ex rel. Madigan, Attorney General of Illinois v. Telemarketing Associates, Inc. that states can bring fraud actions against telemarketers that make false or misleading representations about how charitable donations will be used. The court previously ruled that high fund- raising costs alone do not necessarily indicate fraud. Yet it rejected claims by telemarketers and charities that prosecutions based on misrepresentations violate the First Amendment.
In 2003 the FTC, joined by the Federal Communications Commission (FCC), established the national do-not-call registry (DNCR). In 2004, the US Court of Appeals for the Tenth Circuit rejected claims that the DNCR violates the First Amendment by allowing consumers to restrict commercial sales calls but not charitable or political calls.
In 2015, the FTC amended the Telemarketing Sales Rule (TSR) to prohibit the use of novel payment mechanisms that make it harder for older consumers to protect themselves, including remotely created checks, payment orders, money transfers, and cash reload mechanisms. It also expanded its prohibition of recovery services so that it applied to losses in any prior transaction, not just those done via telemarketing.
As of September of 2015, the DNCR had accumulated 222 million active registrations, an increase of more than 4.9 million since fiscal year (FY) 2014. Because of the combined jurisdiction of the FTC and FCC, nearly all sales calls placed to US customers are covered; exemptions include political organizations, charities, telephone survey companies, and companies with which a consumer has an existing business relationship. Effective February 2008, consumers no longer have to renew their registration every five years.
Under the registry rules, telemarketers must screen (or scrub) their call lists against the FTC’s registry every 31 days or face fines of up to $11,000 for each call to a registered number. As of September 2013, the FTC had received almost 19 million cumulative complaints from registered consumers and had filed suit against 105 companies, winning a total of $74 million in fines. In FY 2015 alone, the FTC collected more than 3.5 million do-not-call complaints, making them the most frequently collected consumer complaint by far. FY 2015 also saw 2,504 businesses and other entities accessing the registry, generating fees of more than $13.3 million, down slightly from a similar number of entities accessing the registry in FY 2014. On the other hand, some 20,596 entities were granted free access to the registry because they needed no more than five area codes or were a charity.
Also in 2015, the FCC strengthened the core protections of the Telephone Consumer Protection Act (TCPA) of 1991. Specifically, text messages are now considered “calls” subject to the TCPA; callers are now liable for making robocalls to reassigned wireless numbers if the new phone users have not consented to receive them; and callers must now obtain consent for robocalls even if they are not “presently” dialing random or sequential phone numbers. This means that consent must come from the party any robocaller contacts, not just the intended party. Robocalls are difficult to regulate, and the FTC has recently outsourced its strategy to limit or identify illegal robocalls by awarding cash prizes to developers of mobile apps capable of detecting, blocking, and forwarding robocalls to a database where they can be analyzed. In short, the DNCR has had some degree of success, but the FTC and FCC continue to seek innovative and regulatory solutions to the problem of unscrupulous and unwanted telemarketing.
Most states have adopted the National DNCR for state purposes, adding their registered numbers to the national registry. State registry laws are not preempted by the national registry. They may include additional consumer protections, such as exempting additional organizations and including stronger enforcement provisions. Telephone solicitors registered under the DNCR have challenged the authority of states to have stronger laws than the federal TCPA.
The protections available to consumers when they purchase goods and services over the telephone are not comparable to protections for purchases made through the mail or door-to-door. Consumers may be charged long-distance fees when telemarketers call their cell phones. Because of the serious gaps in consumer protection, states can play an invaluable role in preventing, deterring, and prosecuting telemarketing fraud. Reducing the pervasiveness of telemarketing fraud requires strong enforcement at all levels of government.
States should enact meaningful legislation that will provide government oversight and consumer protection against telemarketing fraud.
All telemarketing calls to consumers must immediately state the true purpose of the call in plain language, provide the name and location of the company being represented, and explain all terms, conditions, costs, and refund or cancellation policies, before money is requested. Prize promoters must state that no purchase is necessary to win and explain how to enter a contest without making a purchase.
All courier pickups associated with telemarketing sales should be banned unless the goods are delivered with the opportunity to inspect them before any payment is collected.
No consumer’s bank, savings, trust, stock, or bond account should be directly accessed by a telemarketer as a form of payment for goods or services without the consumer’s express prior written authorization.
Payment processors should be held liable for unauthorized transactions.
Registration and bonding
All telemarketing businesses and their agents that operate in the state must be registered. If a state allows any exemptions to the registration requirement, the entity must still be subject to the state’s telemarketing and consumer fraud laws.
All telemarketers must be bonded, so they can compensate consumers they defraud.
No-call registries (DNCRs) and caller ID
Enforcement of antifraud measures
The Federal Trade Commission should strengthen the Telemarketing Sales Rule. Agency rulemaking and enforcement efforts should address problems that remain in the telemarketing industry, such as online fraud, unauthorized access to consumer bank accounts, disclosures regarding premiums and prize promotions, repeat calling of telemarketing fraud victims, and the contacting of consumers who have placed themselves on a DNCR.
The Department of Justice also should vigorously enforce laws designed to combat telemarketing fraud.
Civil and criminal penalties should be imposed for violations of telemarketing laws, including prison terms for those who knowingly and willfully deceive consumers. These penalties should be assessed based on the degree of fraud committed, regardless of the actual dollar amount lost.
Appropriate investigation and enforcement tools should be available to regulators, including one-party consent for electronic monitoring, to combat telemarketing fraud.