Telephone Consumer Protection Act: New Challenges Stemming from the July 2015 FCC Declaratory Ruling and Order

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1 Telephone Consumer Protection Act: New Challenges Stemming from the July 2015 FCC Declaratory Ruling and Order Authors Daniel JT McKenna Ballard Spahr, LLP Philadelphia, PA Nicole M. Strickler Messer, Stilp & Strickler, LTD Chicago, IL Zachary D. Miller Burr & Forman, LLP Nashville, TN Mauricio Videla CFPB New York, NY The 2015 Declaratory Ruling and Order On July 10, 2015, the Federal Communications Commission ( FCC ) approved a Declaratory Ruling and Order ( Order ) addressing nineteen petitions that requested the FCC clarify its prior interpretations of the Telephone Consumer Protection Act (TCPA). 1 The Order creates new challenges for businesses attempting to comply with the TCPA and avoid liability from consumers asserting a private right of action through class action lawsuits. While the Order provides targeted, content-specific relief for certain industries, the FCC s interpretations create significant new TCPA risks for any business that contacts consumers via telephone. Defining Called Party. As a general rule, the TCPA prohibits the use of an automatic telephone dialing system ( ATDS ) to call a cellular phone without the prior express consent of the called party. 47 U.S.C. 227(b)(1)(A)(iii). The statute, however, does not define the term called party. The FCC attempted to clarify the definition to mean the subscriber, i.e., the consumer assigned the telephone number dialed and billed for the call, or the non-subscriber customary user of a telephone number included in a family or business calling plan. Order, p. 41. This clarified definition provides some relief for businesses by expanding the avenues to obtain prior express consent to include consent provided by the customary user of the telephone line. In other words, a customary user may now bind a subscriber by providing prior express consent, and vice versa. The expanded definition also increases the category of individuals who may assert a TCPA claim and, as discussed further below, it can be difficult or in some cases, impossible to verify the identity of the customary user of a cellular telephone. Defining Autodialers. Prior to the Order, some federal district courts had taken a narrower view than the FCC of the term ATDS. The statutory language of the TCPA states that an ATDS is equipment which has the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers. 47 U.S.C. 227(a)(1). In Hunt v. 21st Mortg. Corp., No. 2:12 CV 2697 WMA, 2013 WL (N.D. Ala. Sept. 17, 2013), the court held that a system must have the present capacity to store or produce and call numbers from a number generator at the time the calls are being made in order to meet the TCPA definition of an automatic telephone dialing system. The FCC broadly defined autodialer to include a wide array of calling equipment and software by interpreting capacity to include equipment that lacks the present ability to dial randomly or sequentially, and that equipment that could be easily modified through software changes has the capacity to dial randomly or sequentially. Order, p. 14. While the FCC provides general parameters for present ability, it leaves open 1 Available at 1

2 almost limitless categories of equipment that could be included within its interpretation. In particular, the FCC proposed that there must be more than a theoretical potential that the equipment could be modified to satisfy the autodialer definition, and that while in theory a rotary-dial phone could be modified to be an autodialer, that possibility is too attenuated for the FCC to find that such a phone has the requisite capacity. Order, p. 15. Companies must now consider how easily their dialing equipment could be modified so that it could dial randomly or sequentially. Departing from its previous interpretation that ATDS required the equipment to dial numbers without human intervention, the FCC has setup new hurdles for potential litigants by requiring a case-by-case analysis regarding how much human intervention is required for a specific piece of equipment to function as an autodialer. Order p. 15. Moreover, the Order clarifies that companies may not divide the ownership of dialing equipment to circumvent liability under the TCPA. For example, if companies contractually divide the storage of consumer information and the actual calling function between separate entities, a voluntary combination of the two may be considered an ATDS if the net result enables the combined equipment to have the capacity to store or produce telephone numbers and to call those numbers randomly or sequentially. Companies using such a model should reassess their TCPA compliance risks. Revoking Consent. The TCPA itself is silent on whether or how consumers may revoke their prior express consent to receive autodialed and prerecorded calls. The Order grants consumers more protections by permitting them to revoke their prior express consent through any reasonable means and in any manner that clearly express[es] a desire not to receive further messages. Additionally, callers may not infringe on that ability by designating an exclusive means to revoke. Order, pp The Order plainly states that consent to receive autodialed and prerecorded calls may be revoked either orally or in writing, for example at an in-store bill payment location, among other possibilities. Id. at 36. In determining the reasonableness of the consumers revocation, the Order states that whether a consumer s revocation is reasonable is a factual question and can be determined by asking: 1. Whether the consumer had a reasonable expectation that he or she could effectively communicate his or her revocation in that circumstance; and 2. Whether the caller could have implemented mechanisms to effectuate a requested revocation without incurring undue burdens. Id. Based on this, companies will need to assess the adequacy of their procedures to ensure they have controls in place to handle the multiple ways through which consumers may revoke their consent for autodialed and prerecorded calls. At a minimum, companies must honor consumers written, oral, and in-person revocation requests. Calls to Reassigned Phone Numbers. Pursuant to the Order, the actual receiving party s consent is required to make an autodialed call. The Order states that callers must have the prior express consent of the current subscriber or the telephone s customary user. If a telephone number is reassigned to a new consumer, a company cannot rely on the prior owner s consent to avoid TCPA liability. Order, p. 39. However, as noted, determining the identity of the subscriber or customary user of a cellphone is not always easy. Cellphone companies routinely reassign telephone numbers after customers close their accounts or switch to another carrier. Further, unless a customer informs a company, there is no reliable way for businesses to promptly determine that a particular customer s cellphone number has been reassigned. Therefore, a company may unknowingly expose itself to liability under the TCPA. The FCC points out that [n]othing in the TCPA or [its] rules prevents parties from creating, through a contract or other private agreement, an obligation for the person giving consent to notify the caller when the number has been 2

3 relinquished. Order, pp As the dissenting Commissioners note, however, prudent businesses would be hesitant to enforce such as clause given the risk to a company s reputation in filing suit against a consumer for a seemingly innocuous failure to update contact information. Even if a company did file suit, it likely would not recover sufficient damages from the consumer to cover its losses given the substantial litigation costs involved in a TCPA action. The Order permits a company to make a single call to the reassigned number to obtain actual or constructive knowledge of the reassignment. Id. at 5, 40. This single call exemption, or safe harbor, extends to an entire corporate family, including all affiliates and subsidiaries. The company, however, may not make a single call if it has actual knowledge of the reassignment. This single call exemption is limited to one call whether the new consumer answers or not. The Order suggests companies adopt best practices to identify reassigned phone numbers. For example, it suggests using a private database that tracks reassigned wireless numbers, even though the database only claims to be accurate 80% of the time. Id. at 45, fn 293, Companies may look for signs of a telephone number s reassignment, such as tones indicating a number is no longer in service or hearing a new name in a voic greeting. Id. at 48. Companies will need to quickly develop procedures to avoid strict liability for contacting reassigned numbers. Porting Telephone Numbers. Porting a telephone number from a residential or business wireline telephone to a mobile telephone number does not revoke a consumer s prior express consent for autodialed calls to that number. Order, p. 32. If the consent obtained for the wireline number satisfies the prior express consent requirements for wireless telephones (i.e., prior express written consent for telemarketing calls or simply prior express consent for collection calls), then the caller may continue to rely on that consent to make autodialed or prerecorded calls to the ported number. Making or Initiating Autodialed Calls (mobile app text messages). Several companies requested the FCC clarify that text messages sent by certain mobile app group text messaging functions were not calls initiated by the company that provided the app, but rather were calls initiated by the user. Order, A company that makes or initiates an autodialed or prerecorded call must comply with the TCPA. Noting that the TCPA does not define how a party makes or initiates an autodialed call, the FCC determined that this is a factual question. The Order creates a two-question test for determining who makes or initiates an autodialed call: 1. Who took the steps necessary to physically place the call; and 2. Whether another person or entity was so involved in placing the call as to be deemed to have initiated it, considering the goals and purposes of the TCPA. Id. at 20. Further, with regards to mobile app text messaging features, the Order clarifies that the fact that a consumer s wireless number is in the contact list on another person s wireless phone, by itself, does not demonstrate consent to autodialed or prerecorded calls or text messages. This presumed consent is insufficient for TCPA purposes. Id. at Prior Express Written Consent for Marketing Calls. The Order clarifies that to obtain a consumer s prior express written consent for marketing calls, telemarketers must disclose to consumers that they will receive telemarketing calls using an autodialer and that consent is not a condition of purchase. Companies may not rely on oral or unwritten prior express consent obtained before the Commission implemented the prior express written consent rule in Order, pp On Demand Text Message Offers. A company may immediately respond to a consumer-initiated request for a text message with a single text message response. Order, pp On demand text message offers 3

4 may suggest a consumer send a text message to a retailer for a special discount or other offer. The Order confirms that a company may respond to the consumer with an immediate one-time text message that fulfills the consumer s request. This one time reply may only contain the information requested by the consumer, and may not contain any marketing messages. Internet-to-Phone Text Messaging. The Order finds that internet-to-phone text messages sent through an or a web portal system are sent using an autodialer and are subject to the TCPA. The Order also confirms that text messages are calls under the TCPA. Order, p. 57. Free to End User Calls by Financial Institutions. The Order grants an exemption requested by the American Bankers Association for certain free to end user autodialed calls by financial institutions. Order, pp The Order exempts four types of calls: Calls intended to prevent fraudulent transactions or identity theft; Data security breach notifications; Measures consumers may take to prevent identity theft following a data breach; and Money transfer notifications. Id. at In addition to being free to the recipient, the Order places seven additional requirements for these exempt calls. Id. at Free to End User Calls by Healthcare Providers. The Order confirms that a consumer consents to autodialed healthcare-related calls subject to HIPAA from a healthcare provider and business associates acting on its behalf when the consumer provides their telephone number to the HIPAA-covered provider. The Order also finds that when a consumer is unable to provide prior express consent because of a medical incapacity, prior express consent for healthcare calls may be obtained from a third party. The Order also exempts, subject to certain requirements, autodialed calls made for a healthcare treatment purpose. These include: Appointment and exam confirmations and reminders; Hospital pre-registration instructions; Pre- and post-operative care instructions; Prescription notifications; and Home healthcare instructions. Like the exempt calls for financial institutions, these healthcare-related exempt calls must be free to the end user and are subject to seven additional requirements. Order, pp Call Blocking Technology. Confirming that telephone carriers may offer consumers the option to block the receipt of autodialed and prerecorded calls to their residential and wireless telephones, the FCC advised that carriers offering blocking services must make clear to consumers that blocking technology may block calls the consumer actually wishes to receive. Order, pp Challenging the Order in Court. After the Order s issuance, three separate organizations have filed suit against the FCC. The three lawsuits are styled as follows: Professional Association for Customer Engagement, Inc. v. Federal Communications Commission, Case No (7th Cir.); ACA International v. Federal Communications Commission and United States of America, No (D.C. Cir.); and Sirius XM Radio Inc. v. Federal Communications Commission and United States of America, No (D.C. Cir.). 4

5 Each of the lawsuits requests judicial review of the Order, arguing that it is arbitrary and capricious, an abuse of discretion, in excess of the FCC s statutory authority, and otherwise contrary to the Constitution and other laws. Specifically, the ACA s petition seeks to set aside the FCC s treatment of: 1. capacity within the definition of ATDS; 2. predictive dialers and treat them in a way that does not expand the statutory definition of ATDS; and, 3. prior express consent, including the FCC s treatment of reassigned numbers, and compel the FCC to: a. establish a viable safe harbor for autodialed wrong number non-telemarketing calls to reassigned wireless numbers, or b. define called party as a call s intended recipient. The three lawsuits have been consolidated since their initial filing. The U.S. Panel on Multidistrict Litigation randomly selected the U.S. Court of Appeals for D.C. Circuit to hear the matters. On August 10, 2015, several additional parties sought leave to intervene in the lawsuit or, in the alternative, leave to participate as amici curiae. These purported interveners Cavalry Portfolio Services, LLC, Diversified Consultants, Inc., and Mercantile Adjustment Bureau, LLC describe themselves as debt collection agencies, state that they have each made a significant investment in call center technologies and contend that the actions of the [FCC] in these proceedings significantly affect the ways in which calls can lawfully be made, and make anyone making outbound telephone calls subject to a claim that calls violated the [TCPA], and expose the caller to spurious class action claims that seek to impose ruinous damages invariably prompting extortionate settlements. See Corrected Mot. to Intervene at 3, In re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, CG Docket No (FCC No ). Defendants looking to challenge the Order in civil litigation face an uphill battle. Federal courts have afforded significant deference to the FCC s prior rulings and orders on the TCPA. Most recently, the Eleventh Circuit unanimously reversed the controversial lower court ruling in Mais v. Gulf Coast Collection Bureau, 768 F.3d 1110 (11th Cir. 2014). In Mais, the plaintiff s cellphone number was provided to a Florida emergency room in connection with the plaintiff s receipt of medical services. The plaintiff s medical debt went unpaid and the account was forwarded to collections. Plaintiff filed suit under the TCPA against the hospital-based radiology provider and the third-party debt collector for making autodialed calls to his cellphone. The debt collector, Gulf Coast, contended that the calls fell within the statutory exception for prior express consent, as interpreted in a 2008 FCC Declaratory Ruling ( Ruling ). The Ruling stated that the provision of a cellphone number to a creditor, e.g., as part of a credit application, reasonably evidences prior express consent by the cellphone subscriber to be contacted at that number regarding the debt. Ruling, p. 6. The FCC further concluded in its Ruling that calls placed by a third party collector on behalf of that creditor are treated as if the creditor itself placed the call. Id. at 7. The district court granted partial summary judgment in favor of the plaintiff, finding that the FCC s interpretation of prior express consent was inconsistent with the language of the TCPA, and alternatively, that the 2008 FCC Ruling did not apply to medical debts and was therefore inapplicable to the case at hand. In reversing the Ruling, the Eleventh Circuit found that the district court lacked the power to consider in any way the validity of the 2008 FCC Ruling and also erred in concluding that the FCC s interpretation did not control the disposition of the case. 768 F.3d 1110, 1113 (11th Cir. 2014). Importantly, the Hobbs Act provides that courts of appeals have exclusive jurisdiction to determine the validity of all FCC final orders. By refusing to enforce the FCC s interpretation, the Eleventh Circuit ruled that the district court exceeded its power. The Eleventh Circuit further concluded that the FCC did not distinguish or exclude medical creditors from the 2008 Ruling, but rather the general language contained in the 2008 Ruling was meant to reach a wide range of creditors and collectors, including those pursuing medical debts. Accordingly, the Eleventh Circuit reversed the partial grant of summary judgment to the plaintiff and remanded the case to the district court with instructions to enter summary judgment in favor of Gulf Coast. 5

6 The majority of federal courts have afforded significant deference to the Commission in interpreting the TCPA. Thus, businesses hoping for a judicial review of the Order should closely follow the developments in the D.C. Circuit and should not assume that challenges to the Order will be successful. Conclusion Companies should work with counsel to review the architecture of their dialing hardware and software systems and to take stock of their policies and procedures for contacting consumers by telephone. In light of the Order, companies may need to revise their systems architecture and develop new policies and procedures to avoid both individual and class-wide exposure for violating the TCPA. The TCPA provides for a private right of action, statutory damages of $500 per violation, and treble damages for willful violations. As pointed out by the dissenting Commissioners, there were almost 2,000 TCPA class action cases filed in About the Authors Daniel JT McKenna Daniel JT McKenna is a partner in the Philadelphia, Pennsylvania office of Ballard Spahr, LLP. Mr. McKenna devotes his practice to privacy and data security, consumer financial services, and mortgage banking litigation. As Co-Practice Leader of the Firm s Privacy and Data Security Group, Mr. McKenna s privacy practice focuses on new product and process design, privacy impact assessments and audits, privacy management and policy, incident planning, incident response and notification, third-party and vendor management, privacy counseling, regulatory comments, and litigation. His clients include banks, loan service providers, health care providers, manufacturers, colleges and universities, and member organizations. Mr. McKenna s consumer financial services practice focuses on individual and class litigation and arbitration in mortgage, credit card, debt-collection, auto loan, and servicing matters. His clients include banks and nonbank lenders, mortgage lenders and servicers, third-party service providers, auto lenders, and repossession companies. He regularly represents clients in a variety of individual and class action matters, including claims brought under the Telephone Consumer Protection Act (TCPA), Truth in Lending Act (TILA), Real Estate Settlement Procedures Act (RESPA), Fair Credit Reporting Act (FCRA), Fair Debt Collection Practices Act (FDCPA), Electronic Funds Transfer Act (EFTA), Home Ownership and Equity Protection Act (HOEPA), Equal Credit Opportunity Act (ECOA), Alternative Mortgage Transaction Parity Act (AMTPA), Uniform Commercial Code (UCC), and state Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) statutes. Mr. McKenna has trial experience in both federal and state courts and significant experience with JAMS and AAA. Zachary D. Miller Zachary D. Miller is an associate in the Nashville, Tennessee office of Burr & Forman, LLP. Mr. Miller is a member of the firm s financial services litigation practice group, where he defends financial institutions such as banks, mortgage lenders, credit card companies, auto finance companies and debt buyers/collectors in consumer lawsuits filed under various state and federal laws, including the Truth-in-Lending Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Telephone Consumer Protection Act, and the Equal Credit Opportunity Act. He is currently serving as defense counsel on several nationwide TCPA class actions and has defended TCPA claims in jurisdictions across the country. While specializing in consumer finance litigation, Zach also handles numerous general commercial litigation matters. Zach is a member of the Tennessee, Alabama and Florida State Bar. Zach serves as a Young Lawyer Liaison for the Debt Collection and the Bankruptcy Subcommittee of the American Bar Association s 6

7 Consumer Financial Services Committee and he is also a graduate of the TIPS/ABOTA National Trial Academy. Nicole M. Strickler Nicole M. Strickler is a shareholder in the Chicago law firm Messer, Stilp, and Strickler, LTD. Ms. Strickler concentrates her practice in the defense of consumer financial litigation throughout the country. This includes representing clients in both individual and class actions involving state and federal consumer laws, including the Fair Debt Collection Practices Act ("FDCPA"), Fair Credit Reporting Act ( FCRA ), and Telephone Consumer Protection Act ( TCPA ), to name just a few. In addition to her substantial experience in trial practice, she also has considerable experience representing clients before state agencies, such as the Illinois Department of Professional Regulation, federal agencies, such as the Consumer Financial Protection Bureau ( CFPB ), as well as in attorney general inquiries and investigations. She also routinely represents clients in both mediation and arbitrations, such as in proceedings held before JAMS. Her clients include small and publically held corporations, lending institutions, collection agencies, creditors, servicers, asset purchasers, credit reporting agencies, law firms and individuals. Ms. Strickler is considered authoritative the consumer financial services compliance field and routinely speaks before industry trade organizations on issues affecting the consumer financial services industry. She also serves as a Young Lawyer Liaison for the Compliance Management Subcommittee of the American Bar Association s Consumer Financial Services Committee. Mauricio Videla Mauricio Videla is a Compliance Examiner with the Consumer Financial Protection Bureau. Mr. Videla previously held positions in legal, regulatory & compliance, retail banking, commercial insurance operations, and corporate governance at large private and public institutions, including TD Bank, N.A., Citibank, N.A., Chubb Group of Insurance Companies, and the City of New York. Mr. Videla holds leadership positions in the American Bar Association Business Law Section as Vice Chair of the Young Lawyers Committee, Young Lawyer Liaison to the Consumer Financial Services Committee, and Chair of the subcommittee for Young Lawyer & Law Student Involvement. Mr. Videla received his B.A. in Psychology and Business Administration from St. John s University, M.P.A. from CUNY Baruch College, and J.D. from Indiana University. This article is the result of the authors independent research and does not necessarily represent the views of the Consumer Financial Protection Bureau or the United States. 7