The Telephone Consumer Protection Act (TCPA) may have real implications for businesses that use robocalls and telemarketing calls. But there are actions businesses can take to modernize their compliance strategy and steer clear of potential litigation.
What is TCPA?
Congress passed the Telephone Consumer Protection Act of 1991 (TCPA) in 1991. The TCPA is regulated and enforced by the Federal Communications Commission (FCC), which regulates interstate and international communications by radio, television, wire, satellite and cable.
TCPA restricts telephone solicitations and limits the use of automated telephone equipment and artificial or prerecorded voice messages, SMS, text messages and fax machines. TCPA also specifies several technical requirements, including identification and contact information of the entity using the device to be contained in the message.
As of October 2013, TCPA requires telemarketers to obtain express written consent before making calls or sending texts to consumers’ mobile phones using an auto-dialer, a pre-recorded or artificial voice, or making calls to any consumer’s phone using a pre-recorded or artificial voice known as “robo” calls.
TCPA provides a private right of action and statutory damages of $500 for each violation and up to $1,500 for each willful violation, which are paid to the consumer. The FCC can also bring an enforcement action and is authorized to impose, civil penalties of up to $16,000 per violation. The potential for damages is substantial as most cases involve a large number of calls, texts or faxes.
Potential impact on businesses
Businesses are vulnerable to costly TCPA investigations, stiff civil penalties and expensive class action litigation. The size of potential classes, combined with the prospect of statutory damages, has led to high TCPA settlements. For example, in August 2014, Capital One Financial Group, Alliance One Receivables Management, and Leading Edge Recovery Solutions LLC and Capital Management Services, L.P. entered into an agreement to pay $75.5 million to end a consolidated class action lawsuit alleging that the companies used an automated dialer to call customers’ cell phones without consent.
According to Bryan Cave LLP’s 2015 Data Privacy Litigation Report, the volume of telemarketing litigation is significantly greater than any other form of data security or data privacy litigation with 65% of all privacy litigation involving claims centered on the TCPA.
All industry sectors have been impacted by litigation; however, the financial sector leads the filings with 35% of TCPA litigation. Moreover:
- 38% of cases are filed in California’s district courts
- 24% of cases are filed in the Northern District of Illinois
- 95% of cases are structured as putative national classes
The primary TCPA allegations include failure to obtain consumers’ prior express consent or failure to include opt-out language or—with respect to faxes—ineffective opt-out mechanism.
Robocalls and telemarketing calls are currently the number one source of consumer complaints at the FCC; undoubtedly consumers want and deserve more control over the calls they receive.
However, the FCC’s broad definition of auto-dialers creates greater uncertainty for consumers and businesses. On August 19, 2016, the FCC held the first meeting of the “Robocall Strike Force,” an industry-led group committed to developing comprehensive solutions to prevent, detect and filter unwanted robocalls.
Tom Wheeler, FCC Chairman, announced that he sent letters to the CEOs of major wireless and wireline phone companies calling on them to offer call-blocking services to their customers at no cost. He also called on the carriers and standards groups to accelerate the development and deployment of technical standards that would prevent spoofing of caller ID and thus make blocking technologies more effective.
On September 22, 2016, the House Subcommittee on Communications and Technology held a hearing entitled “Modernizing the Telephone Consumer Protection Act” to consider the evolution of technology since the TCPA was enacted in 1991. During the hearing, members emphasized the need for laws to evolve as technology does, so that protecting consumer’s safety and productivity remains a priority.
What can businesses do to mitigate exposure from TCPA litigation?
To minimize TCPA actions and potential lawsuits, businesses should consider the following:
- Exercise care and due diligence by ensuring that their marketing practices are in line with TCPA requirements.
- Obtain prior express written consent for artificial or prerecorded voice telemarketing or advertising calls to cellular and residential phones.
- Ensure that opt-out language and mechanisms are in place.
Liability cannot be outsourced, so businesses that utilize vendors to conduct phone, text or fax marketing campaigns should make sure the vendor also exercises care and due diligence, including requiring the vendor’s representations and/or warranties in contracts attesting compliance with TCPA.
Is TCPA covered under cyber policies?
Although TCPA is considered a federal privacy regulation, which is typically intended to be covered under cyber liability policy forms, standard policy forms may exclude coverage for TCPA regulatory actions, civil penalties and fines. However, certain insurers may include specific TCPA coverage grants with sub-limits (e.g., $250K -$1M) and others may offer specific TCPA coverage grants at higher limits (e.g., $10M to $20M), if the policyholder can demonstrate a high level of TCPA compliance.
What about traditional insurance policies?
Some insurers have argued that TCPA damages are punitive in nature and, therefore, uninsurable as a matter of public policy or that coverage is precluded if the policy contains a willful violation of statute exclusion.
In addressing the public policy issue, at least one court has held that, because the TCPA was designed to create remedies for the protection of rights and was remedial in nature as opposed to punitive, the insurer’s public policy argument could not succeed. Std. Mut. Ins. Co. v. Lay, 2013 IL 114617 (IL 2013).
Similarly, in Terra Nova Ins. Co. v. Fray-Witzer, 449 Mass. 406, 411-413 (2007), the court refused to apply an exclusion for injury arising out of the willful violation of a penal statute on the ground that the TCPA is remedial, not penal.
The applicability of these arguments will vary depending on the facts, insurance policy and jurisdiction involved in each claim. However, it is instructive with respect to potential arguments against an insurers’ interpretation of coverage grant for TCPA penalties.
Accordingly, it is important to pay particular attention to policy language and work with insurance brokers and legal counsel well-versed in the TCPA.