DMA Guidance to List Industry on FTC Legal Interpretation RE: Lists

Screening Offers Before List Rental

In August 2004, three list management companies settled Federal Trade Commission (FTC) charges that they had aided telemarketers in the marketing of advance fee credit products. Advance fee credit products are illegal under the Telemarketing Sales Rule (TSR). According to the FTC, the list managers should have known that the telemarketing scripts submitted by the telemarketers violated the Telemarketing Sales Rule (TSR).

The FTC’s position is clear: (1) Those who provide lists for telemarketing share at least some responsibility for knowing what promotion will be communicated to those lists and (2) especially for knowing when the script or promotion, on its face, violates the TSR.

The FTC's announcement in August left many questions unanswered. For example, could the FTC expect list managers to be insurers for all advertisements? Also, in light of the many complicated Federal and state consumer protection laws covering a wide variety of subjects, how could list managers know in advance whether the advertiser will deliver on the offer? And, would list managers be able to afford the sort of legal review and oversight that the FTC seemed to require?

On October 14, 2004, The DMA met with FTC staff to ascertain the answers to these questions and to better understand the FTC’s actions. Our most important goal in that meeting was to clarify the scope of responsibility for those in the list business.

This fact sheet sets out our understanding of FTC staff’s views and what it all means for the list industry.

Background

The FTC's interest in the list industry is nothing new since lists are a key instrument of marketing. The FTC’s goal always has been – and remains – to aggressively “uproot” legal violations by also pursuing those who may have supported, or made possible, a legal violation.

The FTC's August 2004 settlements are specific to the Telemarketing Sales Rule, with the FTC taking the position that the list managers “knew or consciously avoided knowing” that there was a TSR violation in the approved script. The FTC, however, is not limiting its interest in this regard to telemarketing, however. In its view, those who provide lists to marketers promoting their products through e-mail or traditional mail also have responsibility to review promotions.

Although these settlements were focused on the list industry, the FTC made it clear that they could hold other industries responsible for helping to support violations as well, such as credit card providers and publishers.

Where Does an Upstanding List Manager’s Responsibility End?

The FTC does not expect those in the list industry to guarantee every ad. However, if those renting lists “know or should have known” a violation is taking place and participate anyway, they could be held liable.

In operational terms, this means that you should look at the script. If “on its face” it looks like a perfectly reasonable offer, and there is nothing else that clues you into a problem, the FTC is not likely to hold you responsible.

On the other hand, the FTC is prepared to hold those who rent lists responsible for:

Knowingly collaborating in an illegal offer. This occurs when those who rent lists allow a list to be used with the knowledge that the offer was illegal or simply turn a blind eye.
Misrepresentations or violations a list company can easily recognize in the script or promotion. An example here might be an ad guaranteeing that one will lose 30 pounds overnight or become a millionaire stuffing envelopes at home.
Not acting on information they become aware of about a particular offer or marketer. An example here might be that a business peer or consumer brings to your attention that the ad is fraudulent and you do nothing.
Consciously avoiding knowledge about a legal violation. Some marketers might think that they could minimize their legal risk if they just don’t ask for or review promotions at all. That is not true. FTC staff would view that as avoiding the discovery of a violation and, in so doing, could be considered as assisting a wrongdoer.

What Should You Do to Avoid Problems?

1. Follow The DMA Guidelines

DMA Guidelines require that list owners, brokers, managers, compilers, and users of marketing lists “ascertain the nature of the list’s intended usage for each materially different marketing use prior to rental, sale, exchange, transfer or use of the list.” Further you should not permit the use of your marketing lists in any way that would be in violation of the DMA Ethical Guidelines.

To successfully implement DMA Guidelines:

All partners involved in the use of the marketing list should agree on the use prior to rental. Ask for and obtain a copy of the script, e-mail or print promotion and keep it on file. Monitor or decoy list usage to make sure that your approved use of the list is the actual use.
The person who reviews promotions on your behalf should be knowledgeable about DMA Ethical Guidelines and relevant laws. This could be an internal staff person or outside counsel. DMA staff can be of assistance, too.

2. Review the Promotion

Those who rent lists to telemarketers should have an understanding of the Telemarketing Sales Rule (TSR). Similarly, those who rent e-mail lists should know the CAN-SPAM Act.

In addition, all list managers should educate themselves on the most obvious fraud schemes. Avoid promoting an obvious fraud by asking whether the offer, promotion, payoff, or benefit sounds too good to be true.

Pay particular attention to get-rich-quick schemes, outrageous weight-loss claims, miracle health cures, credit-repair promises, advance fee loan offers, or unbelievably inexpensive travel offers.

Also, view carefully any ads that claim endorsement of a government agency or national consumer group. Most do not approve or endorse specific products.

3. Know Your Business Partner

You have the right – and indeed the obligation – not to do business with any company that is obviously breaking the law. It is, therefore important that you check out potential business partners to verify reputation, integrity, and performance.

The FTC settlements underscore the need for knowing with whom you are doing business. Just as you would investigate to make sure that your new business partner has a good reputation for fair business dealings, it pays to investigate their past experience with regulators. A quick background and reference check on a potential business partner can save costly legal fees and risk to your own reputation.

Additional Information

For further information on The DMA Guidelines for Ethical Business Practice, go to: www.the-dma.org/guidelines/ethicalguidelines.shtml.

For more detailed educational material on list screening, go to: www.the-dma.org/guidelines/screeningadvertisements.shtml.

Issued: October 28, 2004

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