For over 30 years, there are very few court cases where states have enforced the laws and obtained a court order requiring compliance with a registration law because legitimate clients and their agents have an economic interest in ensuring compliance.
Although telemarketing registration statutes have been on the books in many states for 30 years or more, there are very few court cases where states have enforced the laws and obtained a court order requiring compliance with a registration law. There are a few potential reasons for this lack of case law:
I’ll save my thoughts regarding these reasons for the conclusion below, but a recent court case eliminates two of the reasons above, and if you relied on the arguments that the registrations were not enforced or enforceable, you should review your compliance position.
A recent case showed that reasons 1. and 2. are not valid. The Attorney General of West Virginia sued a telemarketer for failure to register after receiving 17 complaints from consumers about deceptive refund policies, right to cancel, and the quality and price of goods offered. In Blue Hippo, LLC, et al. v. The Attorney General of West Virginia (February 2009), a Federal Court in West Virginia ruled that West Virginia’s registration for telemarketing requirement was enforceable. The law required telemarketers to register and pay application fees at least 60 days before offering goods or services to consumers in West Virginia.
The first lesson from this case is obvious: businesses should do all they can to minimize consumer complaints. A generous and clear refund policy is usually one of the most effective ways to minimize complaints, as most regulators will bring enforcement actions (reason 1) above) if they receive repeated consumer complaints.
The second lesson is not as apparent unless you read the case. Blue Hippo’s attorneys argued that the state registration law did not apply to their client’s interstate calls based on the U.S. Constitution’s Commerce Clause, which gives the federal government the ability to regulate interstate commerce. This Court rejected that argument concluding the registration did not discriminate against interstate calls (as opposed to intrastate calls) and the burden of registration was outweighed by the benefits caused by the law- i.e. consumer protection. Thus, this Court rejected reason 2. above, I think this reasoning is likely to be adopted by most other courts that consider this same question.
Reason 3. is a bit trickier, and I can only address it anecdotally. Most telemarketing statutes have legislative history associated with them. These are statements from the lawmakers as to why the law is needed. Federal and state telemarketing laws’ legislative histories almost always contain statements that the laws are needed because of widespread abuses. My experience is contrary- legitimate businesses make great efforts to comply and to keep their clients and customers happy. The gap between these two statements is filled by illegitimate businesses- but these entities would not register anyway (let alone comply with antifraud and other laws).
Reason 4. is quite valid. Most state authorities, absent a significant number of consumer complaints or another reason to believe there is a consumer protection issue, will ask (nicely) that a business register if they get notice a business is calling without registration. At that point, the business can register (usually without penalty) or show an exemption.
Finally, reason 5. is also valid, and is perhaps the most applicable of all these reasons because it has caused more entities to register than the other four reasons combined: entities other than states cause businesses to register (or show exemption). I’m speaking of legitimate telemarketers’ clients- the “sellers” whose goods or services are being marketed. In my experience, more than 95% of registrations are caused by clients requiring their telemarketers to register (or show exemptions) as a condition of doing business. The clients are usually deeper pockets, and rightfully want to protect themselves from any legal mistakes by their agents. Legitimate telemarketers, in turn, want to show those clients their due diligence efforts. These due diligence efforts (e.g. opinion letters showing exemptions, etc.) can be used internally to safeguard the service bureau from legal risk, and externally in a sales context to show compliance to existing and potential clients.
Thus, the lack of cases enforcing telemarketing registration laws is not an example of law enforcement, or unenforceable laws. It is an example of self-regulation gone right- legitimate clients and their agents have an economic interest in ensuring compliance, and gauging by the evidence, i.e. the lack of cases, have done a good job.
This article is not to be used as a substitute for legal counsel.