Thursday, April 08, 2010

Magazine Telemarketers Enjoined from Violating FTC Act, Telemarketing Sales Rule

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The federal district court in Las Vegas has a “small surprise” for some telemarketers who sold magazines to consumers at their places of employment.

Telemarketers for Publishers Business Services, Inc. purportedly began their sales pitches with “I just wanted to ask you a few questions on your personal buying habits and if you could help me we have a small surprise for you . . . .” According to the court, the telemarketers’ surprise was a bill for hundreds of dollars for supposedly free magazine subscriptions lasting up to 60 months.

Yesterday, the court issued a permanent injunction against the company prohibiting violations of the Federal Trade Commission Act and the FTC’s Telemarketing Sales Rule (TSR). The consumer protection agency’s request for monetary relief will be considered at a later date.

The telemarketers' “lead” calls, “verification” calls, and subsequent calls to obtain payment all violated federal law, the court held. There was evidence that consumers believed that the telemarketers’ offers were either free or for a nominal amount, and that there was no long-term obligation or no obligation at all. While some of the challenged representations might have been literally true, the overall net impression of the representations had a tendency to mislead consumers into agreeing to long-term obligations to pay the telemarketers hundreds of dollars, the court decided. Further, the subsequent communications to induce payment used misleading representations.

Telemarketing Sales Rule's Business-to-Business Exemption

The telemarketers argued that the business-to-business exemption of the TSR shielded them from the rule’s requirements, because they only called businesses. The court noted that the TSR does not define “business” and that no other court had addressed what “business” meant in the context of the TSR exemption.

Under a natural and plain reading of the exemption, a telemarketer was exempt when it solicited a business regarding purchases on behalf of the business, the court explained. The limited scope of the exemption was apparent, to exclude only telemarketing calls to businesses for business purchases. However, PBS was calling consumers at work. The court rejected the defendants’ argument that their interpretation of the business-to-business exemption was consistent with the industry usage of the term, the FTC’s published regulatory intent, and congressional intent.

The texts of the April 7, 2010, order and permanent injunction in FTC v. Publishers Business Services, Inc., 2:08-cv-00620, appears at 2010-1 Trade Cases ¶76,955.

The FTC’s May 2008 complaint in the matter appears here on the FTC's website.

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