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.


Continue Reading VoIP, Meet VoIR—FTC Settlement Signals That Voice over Internet Robocall Service Providers Are Fair Game

The past five years have seen a major uptick in FTC enforcement against alleged charity fundraising scams, along with increased multi-state coordination in this space. Regular readers of this blog already know that, by having read this, this, this, and this. On September 15, 2020, the FTC filed a complaint in the U.S. District Court for the Southern District of New York against fundraiser Outreach Calling, its owner and principal Mark Gelvan, two other related organizations, and three additional individuals. The attorneys general of New York, New Jersey, Virginia, and Minnesota joined the FTC as plaintiffs in the lawsuit. Alongside their complaint, the FTC and states filed proposed stipulated orders against each of the defendants.

The FTC and states allege that the defendants engaged in deceptive telemarketing campaigns on behalf of numerous (and now defunct) “sham” charities. According to the complaint, the Outreach Calling entities induced tens of millions of dollars in charitable donations by telling donors that the recipient charities provided assistance to particularly vulnerable populations, such as disabled and homeless veterans, breast cancer patients, law enforcement officers, and children. In fact, say the plaintiffs, the recipient charities spent very little of the money raised – in some cases only 1 or 2 percent of gross donations – on charitable programs. Instead, approximately 90 percent of the funds raised were paid to the Outreach Calling fundraisers; most of the remaining money funded the personal expenses of the charities’ principals.

The FTC and states brought causes of action under Section 5 of the FTC Act, the Telemarketing Sales Rule, and state charity and anti-fraud laws. To resolve the litigation, the parties have agreed to enter into stipulated orders that permanently ban the defendants from charity fundraising and that impose a collective monetary judgment of approximately $58 million. As is typical in cases like this one, the monetary judgment will be suspended because of the defendants’ inability to pay it; however, each of them must surrender certain assets, and Mr. Gelvan will have to sell two homes and grant the FTC a lien and mortgage on three of his properties in order to secure his payment obligations under the proposed order.


Continue Reading FTC Partners with State AGs in Latest Crackdown on Charity Fundraising

The issue of what exactly is an autodialer, subject to the restrictions of the Telephone Consumer Protection Act (“TCPA”), may eventually be resolved. But for now, the outlook is much like the long-ago Brooklyn Dodger’s chance of winning the World Series: “Wait ‘Til Next Year.” On July 29, 2020, a divided, 2-1 panel in the Sixth Circuit issued its opinion in Allan v. Pennsylvania Higher Education Assistance Agency, deepening the circuit split over the breadth of the TCPA. Specifically, the Sixth Circuit held that any device that dials from a stored list of numbers is sufficient to constitute an “automatic telephone dialing system” (“ATDS” or “autodialer”). This decision comes on the heels of the Supreme Court granting certiorari in Facebook, Inc. v. Duguid, setting the stage for the high court to, hopefully, not only resolve the split among the circuits, but produce a definition of an autodialer that permits the responsible and efficient generation of calls for a broad array of legitimate reasons—indeed in some cases emergency. (Interestingly, in Allan, the defendant opposed the plaintiffs’ motion to stay the appeal pending Duguid. That’s likely because the defendant had previously prevailed on the ATDS issue in the Eleventh Circuit a few months earlier in a consolidated appeal.)

In Allan, the plaintiffs received hundreds of unwanted calls and automated voice messages regarding student loan debt after they had requested to no longer be called; many of these calls delivered a prerecorded message as well. Plaintiffs sued alleging that they did not consent to the unwanted calls; the district court granted summary judgment to the plaintiffs. On appeal, the Sixth Circuit addressed whether the Defendant’s calling platform constituted an ATDS where it created a calling list based on stored numbers and placed calls, connecting recipients to operators.


Continue Reading Deepening the Divide: Will the Sixth Circuit’s Expansive Reading of the ATDS Definition Survive?

Today the Supreme Court granted certiorari in Facebook, Inc. v. Duguid where it will resolve a circuit split and decide the issue of whether an “automated telephone dialing system” (“ATDS” or “autodialer”) under the Telephone Consumer Protection Act (“TCPA”) encompasses any device that can “store” and “automatically dial” telephone numbers, even if the device does

On Monday July 6, 2020, the U.S. Supreme Court issued its long-awaited decision in Barr v. American Association of Political Consultants, Inc., in which a majority of the Court struck down and severed the 2015 Government Debt Exception (the Exception) to the 1991 Telephone Consumer Protection Act (TCPA) but held that the balance of the TCPA was constitutional.

First, as oral argument in May indicated, the Court was brief in striking down the Exception as unconstitutional.  A plurality of opinions found that the Exception was a content-based restriction that violated the First Amendment.  The majority opinion, authored by Justice Kavanaugh and joined by Chief Justice Roberts, Justice Alito, and Justice Thomas, found the government’s arguments that the Exception was not content-based unpersuasive, but, instead, relied upon the Exception’s text, drawing a distinction based on the message a speaker is permitted to convey: “A robocall that says, ‘Please pay your government debt’ is legal.  A robocall that says ‘Please donate to our political campaign’ is illegal.  Because the law favors speech made for collecting government debt over political and other speech, the law is a content-based restriction on speech.”  Given that the government conceded that it could not satisfy strict scrutiny for a content-based restriction, the majority struck down the Exception as unconstitutional.


Continue Reading Delicate Surgery: Supreme Court Upholds the TCPA but Strikes Down the Government Debt Exception as Unconstitutional in Barr v. AAPC

First Data Merchant Services, LLC (First Data), and its former executive, Chi “Vincent” Ko, will pay $40.2 million to settle Federal Trade Commission (FTC) charges that they ignored obvious warning signs of fraud and processed transactions for an array of scams that caused tens of millions of dollars in harm to consumers.

This action serves as a powerful reminder that the FTC seeks to hold processors and their independent sales organizations (ISOs) financially responsible for facilitating the unlawful conduct of merchants by enabling merchants to access the payments system to allegedly defraud consumers and launder card transactions. Just as noteworthy, the settlement agreed to by First Data may propel new industry standards for processors to formally oversee the merchant onboarding activities of ISOs given responsibility for underwriting merchant accounts.


Continue Reading Latest FTC Payment Processing Case Results in $40 Million Proposed Judgment and ISO Oversight Requirements

On Wednesday May 6, 2020 the Supreme Court heard oral argument in Barr v. American Association of Political Consultants, Inc., a case that will answer whether the government debt exception (“the Exception”) to the Telephone Consumer Protection Act (“TCPA”), which allows for government-backed debt collection calls to be placed to cell phones via autodialer without the prior express consent of the debtor, is unconstitutional under the First Amendment. If the answer is yes, then the Court will also decide whether the Exception—passed in 2015—is severable from the rest of the TCPA—passed in 1991. A toilet flushing was heard during Justice Kagan’s questioning of AAPC’s counsel—not figuratively, but literally. Does this flushing foreshadow the fate of the TCPA? We likely will see in the next few months when a decision is expected.

Though the Government began oral argument by maintaining that the Exception is not content- based, it appeared that a majority of the Court did not agree. Justices Ginsburg, Sotomayor, and Kavanaugh each questioned the Deputy Solicitor General about the Government’s ability to meet its strict scrutiny burden, indicating that they have trouble avoiding the conclusion that the Exception isn’t content-based. Further, Justices Roberts, Thomas, Alito, and Gorsuch bypassed questioning the Government on the constitutionality question (Justice Gorsuch began his questioning by stating, “I think the government debt exception is almost certainly content-based”), but, instead, focused on whether the Exception is severable from the TCPA. The Government proffered two arguments in defense of severability: (1) that striking down the entirety of the TCPA because of the Exception is akin to the “tail wagging the dog,” and (2) that the temporal sequence of the TCPA predating the Exception indicates that the exception can be severed.


Continue Reading Barr v. AAPC Oral Argument: Will SCOTUS Flush the TCPA Down The Toilet?

This week, a group of financial services stakeholders submitted a joint petition to the Federal Communications Commission (FCC) for an expedited declaratory ruling, clarification, or waiver so that phone calls and text messages placed to consumers using autodialers and prerecorded voice messages about matters related to the COVID-19 pandemic would not be subject to onerous consent requirements under the Telephone Consumer Protection Act (TCPA).

According to the petitioners, class action litigation risks under the TCPA limit banks and other financial services organizations in the communications they send to consumers, and without confirmation by the FCC that certain COVID-19 calls and texts are subject to the “emergency purposes” exception under the TCPA, financial institutions may not be able to effectively distribute messages about fee waivers, payment deferrals, mortgages, loan modifications, low-rate and zero-rate loans, and other accommodations made in light of the COVID-19 crisis.


Continue Reading Financial Services Stakeholders Request TCPA “Emergency Purposes” Exception for COVID-19 Calls

Last week, the Arizona Attorney General filed a complaint against telemarketer Valley Delivery LLC and affiliated companies Next Day Delivery LLC and My Home Services LLC, and an individual defendant, Mathew Willes, for allegedly distributing fake missed package slips to homeowners to collect their personal information in a “delivery slip scheme.” While the conduct here seems particularly egregious, the case serves as a good reminder that the State AGs remain focused on consumer protection issues especially involving personal data and telemarketing.

The complaint alleged that since January 2017, Valley Delivery gathered new homeowners’ addresses from the county recorder’s office and then dispatched “delivery drivers” to those addresses to post fake delivery slips, with the caption “Sorry We Missed You” on the door of each home. The delivery slips contained a callback telephone number, purportedly for consumers to reschedule the delivery. However, when consumers dialed the callback number on the slips, representatives allegedly collected consumers’ information for telemarketing purposes by affiliated companies and third parties. In addition, according to the complaint, the defendants created websites with false information about the company meant to induce consumers to contact the companies about their “missed delivery.” The defendants allegedly failed to provide sufficient disclosure to consumers concerning their business practices, both on the companies’ websites and on the delivery slips themselves. Even though, there was a purported disclaimer on the back of the slip that any contact information customers provide may be used by the companies or any of its partners for marketing purposes, many homeowners did not see this less conspicuous language placed in a smaller font than the language on the front of the slip.


Continue Reading Arizona Attorney General’s Second Crackdown on the Same Telemarketer

Last weekend, New York Governor Andrew Cuomo declared a state of emergency in the State due to the coronavirus outbreak. That’s scary enough. But there is an equally scary and somewhat odd consequence of New York’s declared state of emergency: the recently enacted New York Nuisance Call Act kicks in automatically. As a practical matter,