Unregulated Charity Calls Must Be Made By In-House Staff

Telephone solicitations from non-profit organizations need not follow the Federal Trade Commission (FTC) guidelines but only if the calls are made by in-house staff, the Fourth Circuit has ruled.

The FTC lacks jurisdiction over non-profit organizations. That’s why in 1994 when the Telemarketing Consumer Fraud and Abuse Prevention Act’s rules went into effect, non-profits were exempt. However, when Congress passed the PATRIOT Act, it gave authority to the FTC to regulate “fraudulent charitable solicitations.”

In order to do so without being outside its jurisdiction, the FTC passed a rule that if a non-profit makes telephone solicitations using a telemarketing firm, those calls were subject to regulation. If the calls were made by in-house staff, the calls were not regulated.

The rule was challenged by two charitable organizations on the grounds that the FTC was acting outside the scope of its authority and that the regulations violated the charities’ First Amendment rights.

The FTC regulated five aspects of a telemarketer’s call; namely, prohibited calls before 8 a.m.; prohibited “abandoned calls;” required that callers promptly explain that they are seeking donations and identify the charity; required that telemarketers transmit their name and phone number to caller identification services and prohibited calls to persons who asked to be put on a special charity do not call list.

The court found that the FTC was in a quandary: “Congress had not altered the jurisdictional provisions in the Telemarketing Act, thus leaving the FTC without jurisdiction over non-profit organizations. But, at the same time, Congress did amend the definition of ‘telemarketing’ to cover charitable solicitations. To reconcile these two congressional mandates, the agency articulated the distinction which is not being challenged.”

The court determined that there was a legitimate governmental interest in regulating telephone solicitations by telemarketers and that the FTC’s regulations were narrowly tailored to serve the purpose. “These regulations are, in short, the product of a necessary balancing. The rights of charities and telefunders to communicate with potential donors were weighted against the right of those donors to enjoy residential peace,” the court wrote.

The dissenting opinion found that if the purpose of the rules were fraud protection and consumer privacy, then “it is unclear that either of these goals is advanced in any material way by the TSR’s inclusion of only solicitations made by telefunders rather than the broader category of all charitable solicitors in its speech restrictions.” “While it cannot be doubted that the government’s rules will prevent some degree of consumer annoyance, the FTC again presents no evidence that telefunders are more likely to be violators of consumer privacy or engage in abusive telemarketing practices than in-house solicitors,” the dissent wrote. “The implications of this holding are staggering,” the dissent warned. “If a regulation that places different restrictions on speech based upon the identity of the speaker can be upheld simply by relying on the jurisdiction of the agency as the ‘neutral justification’ for the distinction, this court will have created a perverse incentive for all legislative bodies. Congress can restrict speech, even unconstitutionally, so long as it does so by parsing jurisdiction between various agencies.”

National Federation of the Blind; Special Olympics Maryland, Inc. v. Federal Trade Commission, Fourth Cir. No. 04-1378, August 26, 2005.