Nonprofit solicitation under the telemarketing sales rule.

• Author: Cain, Rita Marie

1. INTRODUCTION II. FTC STATUTORY AUTHORITY TO REGULATE NONPROFIT SOLICITATION III. FREE SPEECH PROTECTION FOR CHARITABLE SOLICITATION A. Fraud as a Compelling Interest to Support Regulation of Nonprofit Solicitation under the TSR B. Privacy as a Compelling Interest to Support Regulation of Nonprofit Solicitation under the TSR C. Narrow Tailoring of the TSR IV. CONCLUSION I. INTRODUCTION

   In 2003, the Federal Trade Commission ("FTC") revised its Telemarketing Sales Rule ("TSR") to establish a national Do-Not-Call Registry for commercial telemarketing. (1) Thereafter, Congress directed the Federal Communications Commission ("FCC") to coordinate its telemarketing regulations under the Telephone Consumer Protection Act ("TCPA") of 1991 (2) to achieve maximum consistency between the two agencies' telemarketing restrictions. (3) Now, the two agencies enforce a single list containing the personal telephone numbers of consumers who do not wish to receive calls from telemarketers. (4) Based on the agencies' different statutory authorities, some parties are exempt from the FTC rule (banks and insurance companies for example) but are covered by the FCC rules. Nonprofit solicitation is exempt from the national Do-Not-Call Registry, (5) but is covered by other provisions of the FTC rule. (6) The TSR created a new in-house no-call list requirement and imposed additional restrictions not previously known for nonprofit solicitors. (7) These restrictions apply, however, only if a commercial telemarketer is conducting the solicitation call. (8)

   The federal Do-Not-Call System does not preempt any existing state registry. (9) Many states have merged their registries with the federal list, saving their residents from having to register twice. Some states, however, believe their systems provide better consumer protection, usually because of narrower exceptions. These states will continue to enforce their lists separately. (10) Most states exempt nonprofit solicitation from their requirements. North Dakota had rules that covered nonprofit solicitation if it was conducted by a for-profit telemarketer, similar to the FTC construct. (11)

   In 2004, the Tenth Circuit Federal Court of Appeals upheld the validity of the new federal Do-Not-Call Registry. (12) The Supreme Court declined to hear the matter on appeal, leaving the Mainstream Marketing opinion as the final constitutional law regarding the national Do-Not-Call List. (13) Nevertheless, its outcome expressly does not apply to any solicitation on behalf of nonprofit organizations. (14) The separate nonprofit provisions of the TSR raise different issues regarding the scope of FTC authority and First Amendment rights of nonprofit organizations. These regulations are being disputed in separate litigation from the challenge to the national Do-Not-Call Registry. (15)

   This Article looks at the current state of regulatory activity targeting charitable telephone solicitation. First, the Article examines the FTC's authority to adopt the provisions of the TSR that apply to nonprofit organizations. (16) Second, this Article explains the free speech jurisprudence that charitable solicitation cannot be regulated like other commercial messages. (17) Finally, the Article looks at the new FTC restrictions on nonprofit solicitation to determine if they can withstand Constitutional scrutiny. (18)

2. FTC STATUTORY AUTHORITY TO REGULATE NONPROFIT SOLICITATION

   The FTC's restrictions on nonprofit solicitation are based on new mandates under the Uniting and Strengthening America by Providing Appropriate Tools Required to Interrupt and Obstruct Terrorism Act of 2001 ("USA PATRIOT Act"). (19) Often lost in the public debate regarding the USA PATRIOT Act are the provisions that swept charitable solicitation into existing telemarketing statutes. Previously, telephone solicitation by nonprofit organizations had been exempt from the federal Telemarketing and Consumer Fraud and Prevention Abuse Act, which is the FTC's statutory authority underlying the Telemarketing Sales Rule. (20) Nonprofit solicitation is also exempt from the Telephone Consumer Protection Act of 1991, which is the FCC's statutory authority for regulating telemarketing. (21)

   Section 1011(b) of the USA PATRIOT Act amends the definition of "telemarketing" in the Telemarketing and Consumer Fraud and Abuse Prevention Act to include any telephone solicitation program conducted to induce % charitable contribution, donation, or gift of money or any other thing of value." (22) Further, the definition of a "deceptive practice" under the Telemarketing and Consumer Fraud and Abuse Prevention Act was amended to include "fraudulent charitable solicitation." (23) Although not stated in the USA PATRIOT Act, the FTC concluded that these amendments only apply to charitable solicitations conducted by commercial telemarketers on behalf of nonprofit organizations. According to the FTC, nonprofit organizations are exempt from the FTC's general statutory authority to regulate unfair and deceptive trade practices. (24) The USA PATRIOT Act did not expand the FTC's basic statutory authority. Thus, the only way to reconcile the USA PATRIOT Act with the FTC's existing power over for-profit firms is to conclude that the USA PATRIOT Act only enables the FTC to regulate charitable solicitation conducted by commercial telemarketers. (25)

   Arguably, the FTC's interpretation of this statutory authority under the USA PATRIOT Act is too limited to effectuate the Act's purpose. The legislative history of the Act, in the weeks following the September 11 attacks, makes it clear that Congress wanted to tackle the problem of fraudulent charitable solicitors who funneled donations to terrorists. (26)

   This legislative objective will not be met if the regulations focus only on the solicitation conducted by commercial solicitors and not on the defrauding charities themselves. Potentially, if sham charities were soliciting funds to funnel to terrorists, they would not hire a third-party firm to conduct their solicitation. Such a relationship with a commercial telemarketing vendor would require contracts, payments by check or credit card between the firms, and some interaction between the telemarketer and the persons representing the sham charity. Presumably, if a sham charity were trying to launder funds to terrorists, it would try to limit paper trails and third-party contacts regarding its illegal activities. Arguably, it would keep the telemarketing function within the organization of fellow conspirators.

   Another interpretation of the USA PATRIOT Act is that, for the purpose of regulating fraudulent charitable solicitation, the FTC's original jurisdiction is expanded to include all solicitors whether their legal status is commercial or noncommercial. (27) This interpretation would better accomplish the regulatory objective of the USA PATRIOT Act (and would sidestep the constitutional sticking point, discussed below, that the FTC is unfairly regulating the free speech of those charities that must outsource their solicitation activities to for-profit firms). (28)

   Whether or not the FTC is correct in limiting its approach to commercial parties soliciting for nonprofits, there is still a question whether the FTC could use the USA PATRIOT Act's mandates to impose privacy protections on nonprofit solicitation. These privacy protections include the in-house do-not-call list, time-of-day restrictions and technical requirements for autodialing equipment. (29) By enacting the USA PATRIOT Act, Congress targeted fraudulent charitable solicitation as part of a law enforcement regime designed to prevent money laundering for terrorist activity. Arguably, the USA PATRIOT Act does not support the FTC's move to also extend its various personal privacy restrictions to charitable solicitation.

   The FTC addressed this point by stating that nothing in the USA PATRIOT Act suggested that Congress sought to exclude nonprofit solicitation from the privacy provisions of the TSR. (30) Under this approach, Congress would have to tell a federal agency what powers it is not bestowing when it enacts enabling legislation. The FTC also argues that the USA PATRIOT Act rewrote the general definition of "telemarketing" to include nonprofit solicitation. (31) Accordingly, Congress altered the scope of the TSR, and thus empowered the FTC to exercise any or all of its Telemarketing Act authority over nonprofit solicitation. (32)

   While the USA PATRIOT Act amends the definition of telemarketing to include charitable solicitation, it does not stop there. The statute actually goes beyond the general and states one, and only one, specific telemarketing restriction for the FTC to address--disclosure. (33) The disclosure requirements serve the dual purpose of fraud and privacy protection. Providing identifying information allows potential donors to investigate the organization before agreeing to contribute. After contributing, if donors have reason to suspect the charity is questionable, they have the identifying information to forward to law enforcement. These disclosure requirements also protect in-home privacy by allowing consumers to terminate the call immediately upon hearing the nature and source of the call.

   The FTC asserts that the USA PATRIOT Act's general definition of telemarketing injected charitable solicitation into all the provisions of the TSR. (34) This interpretation of the general definitions in the Act ignores the new, more specific mandates. Arguably, if Congress were authorizing the FTC to consider any other possible telemarketing regulations for nonprofits, such as the Do-Not-Call List requirement, it would not have expressly singled out disclosure in the legislation. In other words, once Congress expressed one specific requirement that the FTC could impose on nonprofit solicitation, the FTC was not tree to assume blanket authority over nonprofit telemarketing.

   At least one United States senator...