When Congress passed the Telephone Consumer Protection Act (TCPA) in 1991, the world was a very different place. Median household income was $30,000; a dozen eggs cost a dollar, and a first class postage stamp was 25 cents. Almost every home had a hardwired, landline telephone and cellphones were an emerging novelty. With a sputtering economy, many companies turned to telemarketing to boost lagging sales and increase market share.
But, as we all know by now, telemarketing got out of hand, and prime-time calls from telemarketers became unwanted guests at the family dinner table. In response, a bipartisan Congress, with guidance from consumer advocates, stepped in to establish needed rules for an intrusive practice.
Consumer privacy and protection
The TCPA was intended to address what was widely accepted as an invasion of consumer privacy by overzealous companies. The law authorized the Federal Communications Commission (FCC) to implement rules that would outlaw two main business practices: (1) making telemarketing calls using an artificial or prerecorded voice to residential telephones without prior express consent; and (2) making any non-emergency call using an automatic telephone dialing system ("autodialer") or an artificial or prerecorded voice to a wireless telephone number without prior express consent.
The law requires businesses to obtain written consent from consumers for any telemarketing or advertising calls. If companies call a wireless number using an autodialer or prerecorded call for non-marketing purposes, the consent may be oral or written. For each violation, the FCC can sue. The law also grants consumers a private right to sue for the greater of $500 or the actual monetary loss in damages, and treble (triple) damages for each willful or knowing violation.
As technology advanced, new hardware and software systems were introduced. More Americans acquired cellphones, and with a robust and competitive market, changing plans, providers and numbers became common. Today, the FCC points out that over 100,000 numbers are reassigned every day. These developments have produced conflicting judicial interpretations of the TCPA. What was once clear became quite complex, and businesses struggled to understand and comply with contemporary applications of a law passed for another time and space.
Over the years, the FCC has issued numerous Declaratory Rulings to clarify certain aspects of the TCPA. The agency noted that it has sought to "reasonably accommodate individuals' rights to privacy as well as the legitimate business interests of telemarketers and other callers." But all is not well. Somewhere along the line, the reasonable balance that was originally intended shifted away from business into the hands of activist plaintiffs' lawyers, and they have taken it all the way to the bank.
Plaintiffs' attorneys reap windfalls
The TCPA is a strict liability statute. This means a single misstep, however well-intended, can result in a violation. Even if a company is mistaken or has attempted to comply with the law, the TCPA can be unforgiving. For example, if a company calls the wrong party or calls a customer without prior express permission, each violation entitles that person to file a lawsuit seeking damages of $500 to $1,500 per unsolicited call, text or fax per person.
This drop-dead aspect of the TCPA has found special favor with aggressive plaintiffs' attorneys who have exploited the loopholes to reap extraordinary financial gain. To date, thousands of class action lawsuits have been filed against businesses because they either have called a consumer in error, or have called many customers using automatic dialing systems but failed to obtain the necessary consent required by the law. Often these communications are designed to alert us about fraud and identity theft; to confirm transactions; to remind us of appointments or due dates; to help avoid overdraft fees; or generally to facilitate better customer service or relations.
According to the latest report from WebRecon covering the credit industry alone, filings under the TCPA increased by 45 percent in 2015 and reached an all-time high of 3,710. The year-to-year growth has been steady with no end in sight. In 2007, there were only 14 TCPA cases; by 2010, the number increased to 354. In 2011, the cases spiked to 840 and to more than 1,000 starting in 2012. The American Financial Services Association reported that "TCPA lawsuits were up 116 percent in September 2013 compared to September 2012. Echoing that trend, year-to-date TCPA lawsuits have increased 70 percent in 2013." And in 2014, there were 2,558 TCPA cases filed in the credit and collection industry alone. For the third consecutive year, TCPA cases are the second most-filed type of case in federal courts nationwide.
Since 2012, the TCPA has been used to extract large settlements from many companies, including Capital One for $75 million; JPMorgan Chase for $34 million; AT&T for $45 million; MetLife for $23 million; Bank of America for $32 million; Papa John's Pizza for $16 million; Walgreen's Pharmacy for $11 million, and the list goes on. For smaller, minority- or community-based businesses, a TCPA claim could mark the end of their existence.
As I pointed out in a recent article in The Wall Street Journal, the average recovery for a consumer in a TCPA class action settlement was $4.12. Their lawyers, by contrast, received an average of $2.4 million. Something is wrong with this picture.
Advocates point out that TCPA complaints, as a whole, are the largest category of informal complaints received by the FCC, averaging over 10,000 per month. The Federal Trade Commission (FTC) reported that it received "approximately 63,000 complaints about illegal robocalls each month" during the fourth quarter of 2009, but that "[b]y the fourth quarter of 2012, robocall complaints had peaked at more than 200,000 per month." The Consumer Federation of America ranked do-not-call and telemarketing abuse issues as No. 8 on its list of complaints, the fastest-growing complaint subject in 2013. Members of Congress have expressed their interest in the consumer protections of the TCPA and the TCPA petitions filed with the commission.
Business asks FCC to clarify the rules
Recognizing that calling and texting consumers en masse has never been easier or less expensive, companies have sought innovative, effective and compliant methods to reach consumers using automated dialing technologies. Dialing options today include cloud-based and smartphone app technology. But many of those methods have given rise to inconsistent interpretations and enforcement of the TCPA.
Given this harsh reality, and citing abuses and unintended consequences of the law, the business sector sought relief from the FCC. From 2012 through 2014, banks, credit agencies, retailers, healthcare companies, utilities, universities, and telecom and educational organizations, among others, petitioned the FCC to clarify its interpretation of key provisions of the TCPA, since the courts had deferred to the FCC's authority to interpret the act and promulgate implementing regulations.
For example, until the FCC ruled in July 2015, there were at least four different interpretations of the term "called party" being applied in TCPA cases throughout the country. The business sector hoped a commonsense, business-friendly interpretation would clarify that and other ambiguities in the statute.
FCC rebuffs business on TCPA petitions
But a 3-2 vote by the FCC provided business with no such comfort. FCC Chairman Tom Wheeler said he intended to use the "petitions as an opportunity to empower consumers and curtail these intrusive communications." The party-line vote signaled a deeper fissure between consumer protection and reasonable business practices at the FCC, with business on the short end of the compromise.
In sum, the FCC's Declaratory Ruling tightened the restrictions on businesses in communicating with customers and consumers. In sequence, the ruling defined "autodialer" as just about any device short of a rotary telephone. It clarified that text messages are considered calls for purposes of the law. The FCC ruled that consumers can revoke consent at "any time and through any reasonable means." And perhaps most challenging for businesses was the FCC's interpretation of who is a "called party" under the law. The agency ruled that the "called party" is the subscriber, or recipient, and not the "intended party" as most businesses preferred. Thus, when it comes to calls to reassigned wireless numbers, the FCC ruled that such calls violate the TCPA when a previous subscriber, not the current subscriber or customary user, provided the prior express consent on which the call is based.
ACA International and several other business associations immediately appealed the FCC's ruling to the U.S. Court of Appeals for the District of Columbia, and the case has been joined or supported by numerous companies and business associations.
It's now up to Congress
Let's be honest: None of us relishes intrusive calls from telemarketers, even if their data show we might be interested in their products or service. On the other hand, there is a valuable function and utility to allowing companies to communicate with their customers, clients, patients or patrons without fear of costly legal action. In essence, business should be able to talk to the people they serve.
Do regulators expect that massive TCPA fines against companies or tremendous class action settlements inure to the benefit of consumers? To the contrary, the only ones being enriched in these cases are an elite group of plaintiffs' attorneys and the U.S. Treasury, not to be confused with one another.
The new interpretation of the TCPA has driven a deeper wedge between consumers and corporations, unnecessarily so. Surely, this cannot be what Congress intended when consumer activists and well-meaning legislators found compromise on the law nearly 25 years ago. If there is any discomfiture with the TCPA — and there should be — it is because class action lawyers have turned a law meant to serve consumers into a law that is simply self-serving.
They have transformed the Telephone Consumer Protection Act —the TCPA — into "Total Cash for Plaintiffs Attorneys."
Hoffman is chairman of Business in the Public Interest and adjunct professor of Communication, Culture & Technology at Georgetown University. He served as a chief of staff and senior legal advisor at the FCC from 2013 to 2015, when the TCPA was under consideration.