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05.25.16

Nonprofits: 411 on the TCPA Nonprofit Exemption

Name aside, the Telephone Consumer Protection Act’s (“TCPA”) Nonprofit Exemption does not provide blanket protection to nonprofits from the TCPA’s rules and regulations. Nor does it apply only to nonprofits.

The TCPA generally prohibits telemarketers from placing solicitation calls to consumers who are listed on the National Do-Not-Call Registry and creates a private right of action for any person who “has received more than one telephone call within any 12-month period by or on behalf of the same entity in violation of” the implementing regulations adopted by the FCC. 47 U.S.C. §227(c)(5). Notably, however, under the TCPA, a call placed “[b]y or on behalf of a tax-exempt nonprofit organization” is not considered a “telephone solicitation.”

In order to understand the exemption, one must first understand the rule. Congress enacted the TCPA in response to the increase of intrusive telemarketing calls to consumers’ homes. Mims v. Arrow Financial Services, LLC, 132 S. Ct. 740, 745 (2012). The TCPA provides for a Do-Not-Call Registry and also outlaws autodialed and pre-recorded calls made to phone numbers that are not necessarily included in the Do-Not-Call Registry under certain circumstances.

First, the TCPA prohibits calls made for telemarketing purposes to persons listed on the National Do-Not-Call Registry. Telemarketing means the “initiation of a telephone call or message for the purpose of encouraging the purchase or rental of, or investment in, property, goods, or services, which is transmitted to any person.” 47 C.F.R. 64.1200(f)(11). The regulations also provide that calls made to residential numbers cannot be made before the hours of 8 a.m. or after 9 p.m., 47 C.F.R. 64.1200(c)(1-2), and that companies or persons can only initiate such calls if they have instituted procedures to maintain a list of persons who request not to receive telemarketing calls made on behalf of that person or company. 47 C.F.R. 64.1200(d).

Second, the TCPA prohibits any call – other than those for emergency purposes or with prior express written consent – using an autodialing system or an artificial prerecorded voice to residential or wireless numbers. 47 U.S.C. § 227(b)(a). Such autodialed and pre-recorded calls must include an interactive opt-out recording and must begin by: (1) identifying the organization responsible for the call and (2) providing the telephone number for the organization responsible for the call. 47 C.F.R. 64.1200(b)(1-3). Additionally, calls made for telemarketing purposes must abide by the “abandonment rules.” See 47 C.F.R. 64.1200(a)(f). This includes not abandoning more than three percent of all telemarketing calls answered live over a 30-day period for a calling campaign and providing for an automated opt-out message whenever a live sales representative is not available to speak with the person answering the call within two seconds after the called person’s completed greeting. 47 C.F.R. 64.1200(a)(f)(i-ii).

Because the TCPA primarily targets commercial telemarketing activities, it provides exemptions for tax-exempt nonprofit organizations. 47 U.S.C. § 227(a)(4). Calls to residential landlines are exempt from TCPA liability if, among other things, they are informational or made by or on behalf of a tax-exempt nonprofit organization, such as a charity, an educational institution, or a religious group. 47 C.F.R. 64.1200(a)(3)(ii-iv). Thus, calls “made by or on behalf” of such entities can be made to residential numbers listed on the Do-Not-Call Registry. When placing such calls, non-profit entities do not have to institute procedures for maintaining a list of persons who request not to receive telemarketing calls and do not have to abide by the “abandonment rules.” 47 C.F.R. 64.1200(d)(7); 47 C.F.R. 64.1200(a)(7)(iv). However, though not required, it is considered best practice for nonprofits to adhere to the hour restrictions provided for “telemarketing” calls.

Likewise, the rules for autodialed and pre-recorded calls differ in some regards for tax-exempt nonprofits and those making calls on their behalf. Autodialed and prerecorded calls to residential numbers do not require any prior express (written or oral) consent, while calls to wireless numbers still do require prior express consent. 47 C.F.R. 64.1200(a)(3)(iv); Aranda v. Caribbean Cruise Line, Inc., No. 12 C 4069, 2016 WL 1555576, at *6 (N.D. Ill. Apr. 18, 2016) (“even non-telemarketing, informational calls, such as those by or on behalf of tax-exempt non-profit organizations . . . require either written or oral consent if made to wireless consumers”). Notably, nonprofits are not exempt from including an organization’s name and number at the beginning of the message.

Of course the Nonprofit Exemption’s language then begs the question: What qualifies as a call placed “on behalf of” a nonprofit? This question is of particular concern because nonprofits often rely on for-profit professional telemarketing firms that assist in fundraising efforts. Such for-profit firms that specialize in servicing non-profits are likewise keen to ensure that they are not subject to TCPA penalties as a result of placing calls “on behalf of” nonprofits. Two FCC Orders have helped to clarify this important issue.

First, in its 2003 FCC Order, the FCC addressed the scope of the Nonprofit Exemption. See 18 FCC Rcd. at 14087-14090. The FCC explained that “calls made by a for-profit telemarketer hired to solicit the purchase of goods or services or donations on behalf of a tax-exempt nonprofit organization are exempt from the rules on telephone solicitation.” Id. at 14089 ¶ 128. The FCC made this decision in acknowledgment of the support for-profit fundraisers provide to nonprofit entities and made clear that the TCPA was not meant to prevent such for-profit fundraisers from making calls on behalf of nonprofits. The Order clarified, however, that if a for-profit organization delivered its own commercial message as part of a telemarketing campaign, “even if accompanied by donations to a charitable organization or referral to a tax-exempt nonprofit organization,” those calls would not qualify for the Nonprofit Exemption. Id. For example, sellers that call to advertise a product and state that a portion of the proceeds will go to a charitable cause are not exempt from the TCPA rules. Id. This clarification was reaffirmed in a subsequent 2005 FCC Order. In response to petitions for reconsideration, the FCC stood by its decision that the Nonprofit Exemption does not apply to for-profit companies that call to encourage the purchase of goods or services, even when they pledge to donate a portion of the proceeds to a nonprofit or charity. 20 FCC Rcd. 3799-3800 ¶ 30.

Three court cases have further clarified the application of the Nonprofit Exemption to for-profit entities. The key inquiry is whether the calls are truly made “on behalf of” a nonprofit. See Fitzhenry v. Independent Order of Foresters, 2015 WL 3711287 (D.S.C. June 15, 2015) and Charvat v. Teleytics, LLC, 2006 WL 2574019 (Ohio App. Aug. 31, 2006). In Fitzhenry, a for-profit company was placing calls in an effort to sell insurance offered by a nonprofit entity. In Charvat, a for-profit company placed calls in an attempt to sell credit counseling services offered by a nonprofit entity. In both cases, the calls were placed by for-profit entities who were promoting goods or services that would be furnished by a nonprofit entity. Both courts concluded that the calls were covered by the Nonprofit Exemption.

Similarly, in Wengle v. DialAmerica Marketing Inc.,132 F. Supp. 3d 910 (E.D. Mich. 2015), the Eastern District of Michigan grappled with the question of whether calls placed by DialAmerica on behalf of a tax-exempt nonprofit, the Special Olympics of Michigan (“SOMI”), were covered by the Nonprofit Exemption. DialAmerica, a professional fundraiser, was hired by SOMI to conduct a magazine-sale fundraising campaign on behalf of SOMI. The court ruled that while the Nonprofit Exemption does not apply to telemarketers or companies donating a percentage of their sales to nonprofits, it does apply when it is the charity that collects the proceeds first and has control over the message of the fundraiser.

In this case, SOMI eventually received 12.5 percent of the proceeds for subscriptions sold, and it was apparent that DialAmerica was truly working “on behalf of” SOMI, not the other way around. SOMI had control over the telemarketing prompts and received payments solicited by DialAmerica directly before passing proceeds back to be apportioned among the magazine publisher, the charity, and DialAmerica. Thus, if the nonprofit controls the fundraiser and the messaging, and the proceeds flow directly to the nonprofit first (primarily to the benefit of the nonprofit), the exemption is likely to apply. But if the for-profit entity runs its own sales campaign and, as a part of that campaign pledges to share some portion of the proceeds with a charity, it is likely the exemption will not apply.

The following are some best practices to employ when a for-profit company assists a non-profit entity in a fundraising campaign:

  • Create a contract that expressly provides that the nonprofit has engaged the for-profit to sell products on the nonprofit’s behalf;
  • Ensure every call begins with a statement that the call is made on behalf of the nonprofit or for the nonprofit;
  • Ensure the nonprofit has control and the ultimate say over the content of the telemarketing script;
  • Make sure all invoices to the customer come from the nonprofit directly, ensuring that a clear business and contractual relationship is formed between the customer and the nonprofit;
  • Make sure funds are paid directly to the nonprofit;
  • Allow for direct donations to the nonprofit in addition to, or instead of, purchase of the product

Tags: TCPA