The FTC’s pursuit of companies purportedly engaged in telemarketing scams is nothing new, but its recent settlement with a company that allegedly assisted a fraudulent telemarketer by providing a Voice over Internet Protocol (VoIP) service is the first of its kind. VoIP is a technology that allows a company to make voice calls using a broadband Internet connection instead of a regular (or analog) phone line. VoIP services can make telemarketing more efficient and cheaper—particularly for autodialing and sending prerecorded messages. These features make it an attractive option for both legitimate and fraudulent telemarketers alike.
On July 29, 2019, the FTC and the Ohio attorney general sued Educare Center Services, Inc. (Educare), among other related entities and individuals, for engaging in an alleged telemarketing scheme that falsely promised consumers that Educare could significantly reduce the interest rate on consumers’ credit cards, along with a 100% money back guarantee. Educare collected payments from consumers using Remotely Created Payment Orders (RCPOs), in direct contravention of the Telemarketing Sales Rule.
In December 2019, the FTC and the Ohio attorney general amended their complaint to include Globex Telecomm, Inc. (Globex) and 9506276 Canada Inc. (9506276), alleging that the two companies, in providing VoIP services, assisted and facilitated the telemarketing scheme. The complaint alleged that Globex and 9506276 knew or consciously avoided knowing that Educare misrepresented the interest rate reduction offer to consumers, and initiated outbound calls that delivered unlawful, prerecorded messages, among other things.
On September 22, 2020, the FTC and the Ohio AG announced a settlement, which requires Globex and 9506276 to pay $1.9 million in monetary relief and forces both companies to engage in more robust client screening and monitoring.
What Does This Mean for Common Carriers?
Readers may be surprised by the FTC’s pursuit of Globex and 9506276, because of the exemption in Section 5 of the FTC Act limiting the FTC’s enforcement authority against common carriers. After all, voice communication service providers would, at first glance, fall squarely within the definition of a common carrier. However, under FCC policies and precedent, VoIP services fall under “Information Services,” and thus are not subject to the FCC’s common carrier rules and policies. Instead, VoIP is treated and regulated like e-mail by the FCC, and the provision of VoIP services is considered a non-common-carrier activity.
This distinction is significant. In 2018, the Ninth Circuit analyzed the scope of the common carrier exemption and found that common carriers are exempt from FTC regulation only to the extent that a common carrier is engaging in common-carrier services. In other words, the test for applying the exemption is activity based, rather than status-based.
Here, liability for Globex and 9506276 Canada Inc. was based upon their provision of VoIP services, which is non-common-carrier activity. Signaling a greater trend, in January 2019, the FTC sent 19 letters to various VoIP service providers, warning them that “assisting and facilitating” illegal telemarketing or robocalling is against the law.
Lessons Learned – Best Practices
Taken together, this means that companies that provide VoIP services to telemarketing clients could find themselves staring down the barrel of an FTC action, whether they consider themselves to be a common carrier or not. The Globex settlement is instructive in providing some best practices to adopt and red flags to avoid.
- Establish detailed protocols for screening existing, new, and prospective clients. This should include a description of the client’s business, its physical and billing addresses, and at least two trade or bank references;
- For telemarketer clients, obtain their national Do-Not-Call Registry Subscription Account Number, along with a description of their goods and services;
- Be wary of clients that pay for VoIP services via stored-value cards, cryptocurrency, or money transfer, those that do not have a public-facing website or social media presence, and those that have been or currently are subject to a government investigative request.
As VoIP technology supplants traditional telephony, you can expect more from the FTC by way of enforcement against VoIP providers that work with telemarketers. VoIP providers should ensure that they are engaging in robust monitoring and screening of their clients to avoid FTC scrutiny.
The authors and others at Venable have considerable experience representing those subjected to Federal Trade Commission investigation and enforcement actions, and advising on regulatory compliance, including on matters related to risk management and other consumer protection concerns.