By Joseph Sanscrainte
The teleservices industry has dealt with a great deal of adversity over the past decade. Starting with the promulgation of the Telephone Consumer Protection Act in 1991, telemarketers have been faced with an avalanche of rules and regulations affecting virtually every aspect of their business. This onslaught of laws has culminated in the creation of a “national” Do Not Call (DNC) program by the Federal Trade Commission (FTC) and the Federal Communications Commission (FCC).
Background: The 10th Circuit Court of Appeals will shortly be ruling on the constitutionality of the FTC/FCC national DNC program. To be determined: whether the FTC/FCC DNC rules create a burden on commercial speech without enunciating a coherent reason for failing to similarly burden non-profit/political speech. In other words, are the FTC and FCC unconstitutionally favoring non-profit/political speech over commercial speech by only making commercial speakers subject to the national DNC list rules?
At the time the FTC first announced its intention to create the national DNC program, 27 states had already launched (or were about to launch) individual DNC registries. In addition, the majority of the remaining 23 states had introduced legislation to do likewise. There is, therefore, a great deal of information available regarding individual state’s experiences with their DNC programs. This article looks at whether the states’ experience with DNC bears any relevancy to the constitutional questions surrounding DNC regulations. Specifically, this article addresses whether charging consumers for access to a DNC registry affects the commercial free speech constitutional analysis.
Now that the Federal program is underway (at least for the time being), the stated goal of the FTC in launching its DNC initiative has now been achieved: all U.S. consumers now have the right to register for a DNC list. Universal DNC access, however, is a costly proposition. At the state level, there is a split between charging only telemarketers, and charging both consumers and telemarketers.
Ultimately, the question of who must pay for DNC lists turns on how the right being asserted by the consumer is perceived. Is the consumer exercising a pre-existing right to be free from unwanted telemarketing calls in his or her own home, or is the consumer exercising an enhanced, legislatively created right that negates the right of the telemarketer to place the call in the first place? If the former, the telemarketer alone pays; if the latter, the consumer pays as well.
Free Speech Concerns: The question of who pays for a DNC list may have an impact on whether a DNC law meets constitutional commercial free speech standards. The constitutional standard being applied by the 10th Circuit is “intermediate” scrutiny, as enunciated in Central Hudson Gas & Elec. Corp. v. Public Service Commission.
To determine whether restrictions on commercial speech survive intermediate scrutiny, Central Hudson first requires a determination of whether the speech in question concerns illegal activity or is misleading; if so, the speech can be freely regulated. If the speech is not illegal or misleading, the second part of the Central Hudson test is to examine whether the government has a substantial interest in regulating the speech. Third, the government must show that the restriction on commercial speech directly and materially advances that interest. Finally, the regulation must be no more extensive than necessary to serve the asserted government interest – the government’s restriction on speech must reflect a careful calculation of the costs and benefits associated with the burden on speech imposed by its prohibition.
Consumer Privacy Rights: DNC lists are designed to protect the privacy interests of consumers by filtering out unwanted telephone calls made by companies offering goods and services for sale. Therefore, in the unique context of telemarketing and DNC lists, it is not the speaker’s speech that is being restricted per se; it is instead access by the speaker to a particular target of the speech that is being restricted. With a DNC list, the target of the speech is empowered, on an individual basis, to decide whether to receive the speech or not. This framework is unique in the context of free-speech regulations in that for the first time, a key issue in determining whether a regulation affecting speech withstands constitutional scrutiny is the mind-set and understanding of each individual who seeks to avoid the speech in question.
Telemarketing sales statistics, along with the experiences of the states, indicate that many consumers who register with free DNC programs may not fully appreciate the impact that this decision has on their ability to conveniently purchase many goods and services. Although anecdotal evidence suggests that consumers are overwhelmingly in favor of DNC laws, the fact remains that the teleservices industry generated more than $660 billion in sales in 2001 – in 2001 alone, over 185 million American consumers made a purchase as a result of an outbound telemarketing call. (Source: Direct Marketing Association.) Consumers’ views on telemarketing are therefore more complex than public opinion polls would indicate.
The Value of Registration: An example of this complexity is the registration rates in states that have implemented DNC programs. In those states where there is a charge to consumers, the registration rates average about five percent of phone lines; in those states that offer the list for free, the registration rates average around 50%. Rather than complete abhorrence of telemarketing calls, this ten-fold disparity points instead to widespread consumer ambivalence towards them – consumers are only interested in a DNC list in significant numbers when the list is offered for free.
For the vast majority of consumers, two elements are critical in distinguishing between whether a call is wanted or unwanted – timing and need. Determining how to match a product or service with the needs of a particular consumer at just the right moment is the fundamental challenge of marketing. U.S. consumers understand that marketers have to cast a wide net and recognize that the daily deluge of marketing messages they receive are part and parcel of being members of a robust free-market economy. Therefore, from a commercial free speech standpoint, the key to any DNC program is to assure that those consumers who are on a DNC list are fully cognizant of the privileges that they have relinquished by registering for the list.
When consumers have to pay for list registration, they are confronted with a cost/benefit analysis – is avoidance of all calls worth a nominal charge (less than five dollars), given that they will be giving up potentially useful calls (and the conveniences associated with them) as well? The payment requirement serves to identify those consumers who wish to avoid all telemarketing calls by forcing them to make a decision that they are willing to forego the convenience of even useful calls in return for the utility that they perceive from stopping all telemarketing calls.
On the other hand, the availability of a free list opens the potential for registration by consumers who in fact would otherwise welcome timely telephonic solicitations. Put another way, where a DNC list is made available to consumers free of charge, there is no way to ensure that all registrants to the list are in fact expressing a genuine desire to stop all telemarketing calls, no matter how well-timed and independent of the consumer’s need for the product or service being offered. The wide disparity of registration rates at the state level between free lists and those that charge bears this out – inevitably, consumers are registering for free DNC lists that are not aware of the privileges and conveniences that they are foregoing.
Cost-Benefit Concerns: Applying Central Hudson to the above discussion, the most important element of the four-part test to consider is the last one: is the regulation in question more extensive than necessary to serve the government’s interest. Specifically, does a DNC program reflect a careful calculation of the costs and benefits associated with the burden on speech imposed by its prohibition? As discussed above, the mind-set and understanding of the individual consumers who register for a DNC list is a necessary element of this calculation. Is the individual consumer, by signing up for a DNC list, indicating a desire to avoid all telemarketing calls, independent of their utility? The above discussion, as well as the experience of the individual states with their DNC programs, illustrates that many consumers who register with free lists are not expressing such an all-encompassing intent. Rather, by signing up for a free list, many consumers may only be expressing their dissatisfaction with telemarketing calls that are ill-timed and/or do not offer a needed good or service, perhaps unknowingly giving up the availability of other helpful and convenient product offerings.
The difference between the mind-set and understanding of consumers who pay for access to a DNC list and those who do not is significant, and the Central Hudson cost/benefit analysis is accordingly significantly impacted. Although this question is not currently before the 10th Circuit Court of Appeals, it is nevertheless one that ultimately, the courts may have to address.
Joseph Sanscrainte is the Director of Regulatory Affairs/General Counsel for Call Compliance, Inc.
[From Connection Magazine – December 2003]