Time for a commonsense approach to the Telephone Consumer Protection Act

The Telephone Consumer Protection Act (TCPA) was enacted in 1991 to protect Americans from unwanted and intrusive telemarketing calls. Since then, the law has become more of a sword than a shield, slicing businesses of all sizes for the slightest of mistakes. It has become the vehicle of choice for ambitious plaintiffs’ attorneys seeking to cash in on companies that have good intentions but are noncompliant in calling their customers.

{mosads}Class-action lawsuits brought under the TCPA have been fueled by a statutory penalty of $500 per violation. Although this penalty does not have any relation to any actual harm, the damages for even the smallest number of violations can easily balloon to near-bankruptcy levels. This sets up a system ripe for abuse as evidenced by lawyers trolling for clients who want to sue deep pocketed companies.

Testifying on behalf of the U.S. Chamber Institute for Legal Reform before the Senate Commerce Committee in May, Becca Wahlquist pointed out the following:

American businesses have discovered that if they reach out to customers via call, text, or facsimile for any reason, their company is at risk of being sued under the TCPA.

A plaintiff claims that a communication was made without his or her consent using certain technologies, and more often than not, that plaintiff claims to represent a nationwide class seeking the $500 (or $1,500, if willful) statutory damages available under the TCPA for each communication. Thus, the small business that sent 5,000 faxes finds itself being sued for a minimum of $2.5 million dollars; the restaurant that sent 80,000 text coupons is sued for trebled damages of $120 million dollars; and the bank with 5 million customers finds itself staring at $2.5 billion in minimum statutory liability for just one call placed to each of its customers.

Like any strict liability statute, the TCPA has proven to have some unintended consequences. For example, it establishes a private right of action, which was intended to allow consumers to sue on their own. There is little doubt, however, that Congress intended the statute to be a convenient vehicle for multimillion-dollar class-action lawsuits, which is how it is being leveraged today. I have said before that TCPA stands for “Total Cash for Plaintiffs’ Attorneys.”

Vicarious liability

There has been considerable uncertainty about vicarious liability under the TCPA. In 2013, the Federal Communications Commission (FCC) intended to clarify the issue in a guidance, but ended up adding more confusion. Rather than providing clarity and certainty, the guidance further eroded a clear understanding of the “rules of the road.” As such, it weakened a potentially positive catalyst for businesses to do the “right thing.”

In fact, this uncertainty has created a disincentive for businesses not to establish robust compliance oversight programs with third-party providers out of fear that such oversight would be used against them in litigation — a fear grounded in the reality of several high profile lawsuits.

Vicarious liability lawsuits have proliferated in recent years, including Campbell-Ewald v. Gomez, in which the U.S. Court of Appeals for the Ninth Circuit held that vicarious liability under the TCPA applies to all parties in a marketing chain, even a party that neither initiated the sending of, or whose goods or services are mentioned in, unsolicited text messages. The Gomez case is one of an increasing number of class-action TCPA lawsuits with rapidly rising settlements, including: Capital One for $75 million in 2014; Wells Fargo for $14.5 million in 2014; Walgreens for $11 million in 2014, and Kaiser Foundation Health Plan for $5.3 million in 2014.

Against this backdrop, the time is right for a commonsense approach to the TCPA.

One such effort is Sen. Steve Daines’s (R-Mont.), who has a proposal to amend the TCPA to provide incentives to establish voluntary TCPA compliance programs. Under Daines’s approach, if a business implements a meaningful compliance program with its third-party service providers, then that business can raise evidence of its program as an affirmative, compliance defense during litigation. Elements of a compliance program would include requiring by contract that third-party service providers, as well as independent dealers or retailers, comply with the TCPA. Additional elements include implementing and maintaining records, third-party monitoring and review, and taking action upon learning of potential TCPA violations by third party partners.

This approach is both sensible and secure, since many companies refrain from implementing compliance monitoring programs for fear that doing so will target them for litigation — another unintended consequence of the TCPA. As a commonsense approach to TCPA, Daines’s amendment supports the policy goals of the TCPA without diminishing the impact or intent of the statute. It does not remove any existing consumer protections or the private right of action, which are essential to consumer protection.

As the stakes on TCPA litigation continue to rise, we need to smooth the path for companies who want to demonstrate their commitment to responsible communication practices. Compliance programs that are recognized and protected in the law would move us closer to the intersection of consumer protection and corporate responsibility and alleviate costly litigation which hurts corporations and consumers alike.

Hoffman is chairman of Business in the Public Interest and author of “Doing Good: The New Rules of Corporate Responsibility, Conscience and Character.”