FTC eyes list firms

Feb 01, 2005 10:30 PM  By

The FTC recently released three consent orders concerning three list managers that may have repercussions for all sharing of information for marketing purposes. The facts of the three orders are similar:

Reportedly, list managers rented out clients’ customer lists to a company conducting a telemarketing campaign. As is prudent (and consistent with DMA guidelines), the list manager requested and “reviewed” the telemarketing script. The script allegedly indicated that the marketing campaign was for a “fee for credit” offer. The Telemarketing Sales Rule (TSR) specifically prohibits fee-for-credit telemarketing offers. The TSR also contains a provision prohibiting “assisting and facilitating” any violation of the rule. Since the list managers in the three cases had reviewed the script, they knew that the marketing campaign violated the TSR. By providing the consumer lists to the telemarketer, the list managers had allegedly assisted the telemarketer’s violation of the TSR.

The FTC believes that one way to prevent fraud in marketing is to find not only the marketer but also the service providers for the marketer. In that light, the FTC has followed the money to track down financial middlemen who may have helped perpetrate fraud. With these consent orders, the FTC is telling those of us in the direct marketing community that a list provider may also be seen as an integral part of an illegal or fraudulent marketing campaign.

From reading the facts of the case, one might think that the list managers could have avoided responsibility or liability by not requesting and reviewing the script. Not so! A violation of the TSR would have applied to the list managers if they had consciously avoided knowing about the violation of the TSR.

Literally, the consent orders apply to list managers supplying a consumer list to a telemarketer who violates the fee-for-credit provision of the TSR. But if you have been around Washington as long as I have, you know that the tenets of these orders go far beyond the specifics of the cases. After looking at the facts of these orders, one could easily believe that the FTC might find the list owner as liable as the list manager. Whether or not the FTC would find liability for an agent of the lessee or a list broker is a more difficult question, but I think that those individuals or companies should know with whom they are dealing.

I do not believe that the FTC will restrict its inquiries to telemarketing. The assisting and facilitating provision in the TSR does not apply to mail or e-mail. Section 5 of the Federal Trade Commission Act, however, has a provision against aiding and abetting that likely extends liability to service providers of marketers violating the law.

At a meeting with FTC, I was told there was not a vendetta against the list industry. The FTC is looking to stop fraud and violations of trade regulations. I gathered from the meeting that all players involved in list sharing should be aware of the following:

  • Know to whom a list is rented.
  • Check to see if the lessee has numerous FTC and state fraud actions against him.
  • Review all scripts, e-mail messages, and mail pieces.
  • Know the provisions of the TSR if renting a list for telemarketing.
  • Know the Can-Spam Act provisions for an e-mail campaign.
  • If an offer seems to good to be true, investigate further before you rent.
  • Train your employees on these procedures.
  • Have the procedures and training programs on file and in writing.

As you can see, the FTC does not hold the list provider as a guarantor of the marketing campaign. But the commission would require reasonable procedures, common sense, and knowledge of TSR and Can-Spam.

If you are the lessee of a list, you should begin to see provisions in the rental contracts requiring that the lessee provide all marketing materials. Lessees should expect to provide guarantees that the marketing program does not violate the law. List owners and their list managers should establish in contract the procedures to ensure that marketing campaign materials are reviewed prior to lease. DMA guidelines require that the owner, the manager, and the broker know what the list will be used for. Contracts within the industry must now spell that out. But having a contract provision that the manager will review the material may not protect a list owner if the manager fails to do so or has an inadequate review program. Again, keep in mind the FTC refrain: Know with whom you do business.

In my opinion, the FTC consent orders push the liability question too far. I do not believe that a list manager or owner or broker should have to be a “legal” reviewer of all marketing campaigns for which his list is used. There are too many nuances in the laws to extend liability as the FTC has done. But regardless of my view, this is the law of the land. As responsible marketers you will follow the FTC rulings. Also as responsible marketers you should establish the procedures to comply. You should avoid renting to anyone who has a history of violating the law. That is exactly how the FTC believes these consent orders can help stop the violators. And we all know that fraud hurts everyone in the marketplace, even the most legitimate of practitioners.

I cannot close any discussion of lists without reminding all of you that marketing information should be used for marketing purposes only. That includes not providing such information to law enforcement agencies voluntarily — even for antiterror activities. There are provisions in U.S. law that the government should follow to obtain information from marketers — a subpoena or a national defense letter. Ensure that law enforcement entities obtain those before providing the government with marketing data. It is not un-American to require our government to follow the law.


Jerry Cerasale is senior vice president for government affairs for the Direct Marketing Association in Washington.