Revisiting the Value Proposition of Compliance

Posted: October 16, 2013

value_complianceCompliance Cost Factors
The Federal Trade Commission continues to announce settlement actions with companies regarding Do Not Call and pre-recorded message issues. Several of these settlements resulted in multi-million dollar payments to the US Treasury and 20 years of compliance monitoring “help” from the regulators.

TCPA class action lawsuits are on the rise. These suits typically involve texts or calls to a consumer’s mobile phone using an Automated Telephone Dialing System (ATDS). I am retained as an expert witness in several of these cases. In retrospect, the companies involved in these settlements might agree that an earlier investment in compliance would have justified the costs.

Consumer privacy, security and breach concerns are another potential source of brand and fiscal damage. US laws are becoming tougher in these areas as pressure from the global marketplace pushes us towards EU style privacy protections.

The cost of compliance is often risk mitigation versus bottom-line impact analysis. This analysis has led some companies to make business decisions to assume some risk. A company’s tolerance for risk varies widely depending on such items as the importance of public image, likelihood of consumer complaints, nature of the products or services, and the level of historical enforcements. Other companies consider compliance costs as a value proposition or market differentiator for their client base.

The use of social media means that consumer complaints about privacy concerns or bad service can be even more harmful to the brand than complaints to the regulators. Many companies now expend resources to scour blogs, social media sites and forums for dissatisfied consumer commentary. Savvy consumers believe a company’s response to a negative post on a social media site will be faster and more accommodating than the results of a telephone call to customer service. The Better Business Bureau can be another source of trouble. Complaints that are poorly addressed or ignored by businesses can also have significant consequences.

Seller Compliance Considerations
For many companies the public relations image of the name or brand is of paramount importance. They consider the costs of compliance to be an investment in maintaining that image. These companies believe that they would be damaged by media coverage of an FTC enforcement action or even public claims of non-compliance.

Business-to-Consumer as well as Business-to-Business sellers bear the ultimate compliance burden for compliance even when they engage third party providers for consumer contact services. It is for this reason that sellers must develop and implement compliance monitoring and enforcement controls and procedures. Sellers must not rely solely upon contracts with service providers to ensure compliance.

Recently, the FCC released a staff advisory opinion regarding seller liability (vicarious liability) for the actions of their service providers. The opinion stated that even though the seller may not initiate the call, the FCC held that the seller may be vicariously liable under agency principles. This vicarious liability would only apply if the caller was the seller’s agent. An “agent” is defined as a fiduciary relationship where the agent acts on the seller’s behalf and is subject to the seller’s control.

This could be relevant if a third party acts illegally (e.g. sends illegal facsimiles, prerecorded calls, texts, and so forth) without the knowledge or authority of the seller (in agency law known as the “principal”) in an attempt to sell the principal’s goods or services.

Many TCPA class actions have been filed against sellers for the actions of their unscrupulous marketers, despite the actions of the sellers to prevent such unscrupulous marketing. This ruling is directly relevant to those cases.

The FCC, therefore, recommends that the sellers exercise “reasonable diligence in selecting and monitoring reputable telemarketers” which is exactly what legitimate companies do. The FCC gives several examples of relationships which would constitute an agency relationship between a marketer and a seller. You should review your contracts and relationships to ensure compliance both with applicable law and this new ruling.

Service Provider Compliance Considerations
Service providers include contact centers, lead providers, and email/text fulfillment services and so on. Since the National DNC Registry became active in 2003, the regulators have considerably stepped up enforcement actions. Several of the settlements have demonstrated that sellers may not simply contract away compliance to their service providers. Seller companies have realized that they must have an active role in the compliance of their service bureaus and they have a vested interest in dealing with reputable providers.

Many reputable service providers have made significant investments in compliance. These companies retain capable compliance staffs who know how the laws apply to them and their clients. These companies have invested in technology that supports compliance requirements. These types of providers are able to provide services that meet or exceed the most demanding compliance requirements of their client base. One of the most common questions our consultants get from clients is, “can you recommend a compliant contact center?”

Work to Reduce Consumer Complaints
Obviously, consumer complaints are the root of all things bad. We always recommend that clients institute some reasonable steps to reduce the likelihood of complaints.

These steps include:

  • Respond to complaints as quickly as possible
  • Respond to all complaints no matter how trivial
  • Use only reputable lead provider sources
  • Ensure consumers have agreed to your company calling them
  • On outbound calls, remind consumers of their inquiry or relationship to your business
  • Establish reasonable call attempt policies (20 calls in 5 days is too much)
  • Pay attention to calling time restriction rules
  • Due to portability of mobile numbers, use the called parties address rather than area code to determine compliance jurisdiction (calling a consumer with a NY area code at 8 am EST who actually lives in CA is not good)
  • Honor Do Not Call requests as quickly as possible but tell consumers they might be called again within 30 days (TSR allows 30 days) while you are removing their number from all lists.
  • Escalate irate consumers who complain they’ve previously asked you to stop calling
  • Escalate caller threats to contact regulators
  • Leave a brief message on answering machines after the second or third attempt

Conclusion
The value proposition of compliance must be analyzed by every company that markets to consumers. Sellers and service bureaus alike benefit from investing in a solid compliance posture.

Ken Sponsler

Author: Ken Sponsler

Ken Sponsler, CIPP, PMP, is the Vice President & General Manager of the Direct Marketing Compliance Practice at CompliancePoint.

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