Have you texted your customers lately? Did you acquire their express written consent beforehand? With the increased use of smart phones, many businesses are adjusting their marketing techniques to connect with their customers via text message. They may unwittingly be placing themselves directly in the line of fire of costly non-compliance litigation related to an obscure law known as the Telephone Consumer Protection Act, or TCPA.
What Is the TCPA?
The TCPA was passed by Congress in 1991. The law significantly limits the use of automatic dialing systems, artificial or prerecorded voice messages and automatic text messages by business directly contacting consumers. Significant fines have been levied against 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 and Walgreen’s for $11 million. The TCPA grants the Federal Communications Commission the authority to create and interpret additional rules necessary to its enforcement.
In 2012, the FCC revised its rules to require companies to obtain “prior express consent” from consumers before automatically dialing or texting them. Businesses can no longer cite to a prior “established business relationship” as the basis for consumer consent. More recently, the FCC ruled that businesses must present consumers with an opt-out mechanism. As of October 2013, prior consent can only be in writing. Furthermore, consumers can revoke consent at “any time and through any reasonable means.”
Ignorance Is No Excuse
The TCPA is a strict liability statute. This means a company is liable even if it does not intend to violate the statute. An individual who has not provided consent may sue for each separate violation of the TCPA. Consumers are entitled to $500 per violation or up to $1,500 if the consumer can show the violation occurred “knowingly.” Courts have struggled with the question of when violations occur “knowingly” but have consistently ruled that if consumers inform a company that they no longer wish to be contacted, each violation thereafter necessarily occurs knowingly.
The TCPA does not cap damages. For example, if a business texts 1,000 consumers without their prior consent exactly ten times each, the consumers would be entitled to $5 million in a class action suit.
The Dangers Of Non-Compliance
More companies are turning to automated systems to text their customers. Originally envisioned to target only telemarketers, the TCPA has morphed into a much broader and more ubiquitous regulation. Now, through the FCC’s broad interpretation, the TCPA applies to all businesses using automatic systems to contact their customers. Companies not in compliance can face stiff fines. In addition, by current estimates, over 100,000 cell phone numbers are reassigned every day. Where a company once had prior express written consent, consent may vanish if a new customer takes over an old customer’s phone number. Furthermore, the FCC ruled in 2013, parties may be held vicariously liable for the actions of their third-party telemarketers. Thus, TCPA compliance is largely inescapable for companies wishing to contact their customers on cell phones through nearly any sort of automatic system.
TCPA Lawsuits Are On The Rise
Industry analysts have called the TCPA “a juggernaut for class-action lawyers across the country.” For the third consecutive year, TCPA cases are the second most-filed claim in federal courts nationwide. In 2007, there were 14 TCPA claims against the credit and collections industry; by 2010, there were 354; in 2012, there were more than 1,000; and in 2015, a whopping 3,710 claims were filed. This represents a 26,000 percent increase in just eight years. Some advocates are calling for reforming a statute that was not intended to apply so broadly, but Congress must act first, which takes time and political will.
Insurance May Not Cover A TCPA Claim
Typically, a company’s Commercial General Liability (“CGL”) policy will protect the company against its negligent acts. CGL holders have sought coverage for TCPA claims under their “advertising injury” provisions, which are typically included in CGL policies and normally cover injuries that violate an individual’s right to privacy. However, some courts have excluded TCPA coverage based on a more narrow interpretation of the definition of privacy; these courts have held that only injuries to the right to secrecy are covered (as opposed to the right to seclusion). More commonly, insurance carriers are explicitly excluding TCPA coverage from newer policies altogether. As a result, many companies are seeking coverage under their Errors & Omissions (“E&O”) policies, arguing that the claims are the direct result of executive decisions. Still, courts have reached conflicting decisions whether TCPA claims are covered by E&O insurance. The bottom line . . . companies may not be covered.
The TCPA is a favorite for plaintiffs’ consumer class action attorneys. With no damage caps, a relatively small, unwittingly non-compliant business could face severe consequences that could put it out of business. The FCC has consistently broadened its interpretation of the statute and consumers’ right to avoid receiving automatically dialed calls and texts without prior permission. Any business wishing to employ its own or a third-party telemarketing arm should carefully weigh the costs and benefits of such a decision. If the company deems regular automated contact with cell phone subscribers is in the company’s best interests, it should precisely craft its policies to ensure its customers give prior consent and have a clear opt-out mechanism.
J.R. Skrabanek is Senior Counsel at the The Snell Law Firm, email@example.com