New England Biz Law Update
Even though the “written consent” regulations designed to crack down on junk faxes are temporarily on hold, experts tell New England In-House that companies would nonetheless benefit by taking precautionary steps now, including:
▪ establishing a “do-not-fax” list;
▪ providing an opt-out notice on faxes; and
▪ closely tracking compliance with current rules on permissible time periods for sending unsolicited faxes to “established” business customers.
Many businesses breathed a sigh of relief recently when the Federal Communications Commission delayed implementation of regs that would crack down on “advertising” by fax absent written consent from potential customers.
The proposed changes — which would essentially limit commercial faxes to customers who consent in writing to receive them — could hobble the ability of companies to provide quick turnover on loan applications, insurance policy quotes, and other transactions.
The FCC in examining telemarketing abuses decided that restrictions on “junk” faxes also were needed. Interestingly, the FCC’s focus on junk faxes comes at a time when Congress and others are seemingly more concerned about the explosion of spam e-mail.
While the “written consent” portion of the revised fax rules remains in limbo, experts are suggesting other ways to get ready for eventual compliance should the FCC stick to its guns, such as tracking delivery dates of faxes and updating fax numbers on file.
The new rules would have affected any company that uses a fax machine to conduct business for which it charges money. And with penalties of up to $11,000 per fax, violations should not to be taken lightly.
The central change made by the FCC was to eliminate the “established business relationship” exemption to written consent. In the past, the FCC considered customer permission implicit if the fax recipient had an “established business relationship” with the sender. The relationship started when the person made an inquiry, submitted an application, purchased something or conducted another transaction with the company.
Despite the potential impact, the proposed regs flew largely under the radar until just before they were scheduled to take effect.
“Most folks in the corporate community were not aware of [the changes], or were paying relatively little attention to this,” said Frederick J. Krebs, president of the Association of Corporate Counsel America.
But as the effective date of the new regs approached this summer, professional, trade and advocacy associations became aware of them and petitioned the FCC for relief. The commission agreed to suspend most of the rule changes governing faxes until Jan. 1, 2005.
But the FCC is not necessarily reversing course.
In staying implementation of many of the rules, the commission “made it clear that the extension did not signify a retreat,” R. Larson Frisby of the American Bar Association’s Governmental Affairs Office reported in a memo to state bar leaders.
Jeffrey S. Tenenbaum, a Washington, D.C. lawyer who represents several associations and who conducted several workshops on the potential effect of the regulations, agreed.
“[T]he commission did not issue the stay because it believes its decision was wrong, but because it was convinced that more time is needed to comply with the new requirements,” Tenenbaum said in a written report.
In the meantime, associations have turned to Congress for relief from the regulations.
One possible solution being discussed would be to free certain associations from the requirements — although that would do little to solve the problem for the business community.
Associations also have asked the federal Office of Management and Budget to reject the rule changes because the FCC has substantially underestimated compliance costs. However, whether the OMB has the authority to override the FCC under the federal Paperwork Reduction Act is unclear.
Associations have also asked the FCC to explain certain clarifications of the rules.
Steps To Take While Fax Rules Get Sorted Out
While the “written consent” portion of the new rules on commercial faxes remains in limbo, other new changes are now in effect, leaving the scope of the new rules uncertain. Until the full reach of the regs is firmly established, experts suggested the following.
For example, Tenenbaum indicated that associations and businesses should establish a system to track the expiration of time from the last transaction with a customer or inquiry from a potential customer to ensure compliance with the three-month and 18-month limitations on unsolicited faxes to “established” business customers.
They should also maintain a do-not-fax list. An opt-out notice on each fax is not required, but “it may be prudent” to include one, Tenenbaum said.
The new definition of “existing business relationship” does not apply to all affiliated entities of a company. Thus, each entity should establish its own tracking system, “unless the subscriber would reasonably expect them to be included given the nature and type of goods or services offered by the affiliate and the identity of the affiliate,” under the rule.
Not all courts recognize the existing business relationship exemption. In Texas, for example, courts have ruled that the exemption is not consistent with the Telephone Consumer Protection Act.
New rules on fax identification rules are now in effect. The registered corporate name of sender of origin and fax broadcaster should be on each fax. If a doing-business-as name is registered with a state, “it should satisfy the rule,” Tenenbaum said in a written report.
Catherine D. Mayes, in-house counsel for SallieMae, Inc., added: “The first thing I’m going to have to do is make sure all of our fax numbers are right.”
‘Established Business Relationship’ Not Enough
The changes to the fax rules are part of amendments the Federal Communications Commission made to the regulatory underpinning of the Telephone Consumer Protection Act of 1991.
As the FCC was developing rules on telemarketing, the agency also took up the issue of so-called “junk faxes.” Citing testimony by consumer advocates, the commission concluded restrictions were needed to control commercials faxes more effectively.
The regulations are directed at what the FCC calls “unsolicited advertisements,” which it defines as “any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person’s prior express invitation or permission.”
[EDITOR’S NOTE: The report and order describing the amendments can be found online at http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-03-153A1.pdf.]The established business relationship was limited to three months after inquiry calls and 18 months after a purchase.
But the “established relationship” exemption is eliminated under the new regulations.
Under the new rules, before a business can fax advertising material, it must obtain a signed, written consent from the receiver. That consent must list the specific fax numbers to which the material may be sent.
Verbal permission or a customer’s request for information will not suffice, Tenenbaum said, nor will “opt-out” notices, through which existing customers can tell the business they don’t want to receive faxes.
Tenenbaum said he believes the FCC rules would also prohibit faxing the consent form to the customer, although the customer can fax the form back to the company. The rule does allow consent to be submitted by digital signature on websites or through e-mail, Tenenbaum noted.
The consent form must specify what fax numbers can receive the faxes. If a company has numerous machines that can present a complicated data management problem for the sender, Tenenbaum cautioned.
The FCC also modified the rules for identifying the sender of faxes. The previous requirements still stand — every fax still must identify the date and time it is sent, the identity of the originator of the fax, the number of the machine sending the fax or the telephone number of the sender, and the identify of the broadcast fax service, if one is used.
A new requirement, which has not been stayed and is currently in effect, requires the sender and broadcast fax service to be identified by the legal name “under which they are officially registered to conduct business.” Whether a “doing-business-as” name would qualify would depend on the requirements of the states in which the business is registered.
An Uproar
The FCC issued the changes on July 3, and set Aug. 25 as the effective date. As word spread through the association network of the rules’ impact, resistance grew. The stay — which affects only the written consent requirement — was ordered Aug. 18, one week before the effective date.
In the weeks before the original implementation deadline, associations were scrambling to obtain written permissions from their members, vendors and others with whom they have a business relationship.
Without the permission, they would not be able to send out notices of trade shows, dues statements or even membership applications to people who request them.
“Doing so would subject the association to potential FCC enforcement, state enforcement, and more importantly, a private lawsuit for up to $1,500 per violation ($500 per violation, which can be trebled if the violation is knowing and willful),” Tenenbaum indicated. “As past experience has demonstrated, this private right of action can and does incentivize many people to file suit upon receipt of unsolicited faxes.”
If the FCC is called in to enforce the rules, the fines can go as high as $11,000 per fax, Tenenbaum said. Only the fines, and not the private right of action, apply to violation of the identification requirements.
According to Stephen Bokat, senior vice president and general counsel of the U.S. Chamber of Commerce in Washington, D.C., the “do-not-fax” changes would affect “our relationship with all our members. We send hundreds of faxes a week, to let our members know about meetings and conferences where there may be a charge.”
Carl C. Monk, executive director of the Association of American Law Schools, said he had scheduled a conference for constitutional law professors, but, had the rules gone into effect, he would not have been able to fax the information in time to his members.
“Their schools are members of our association, and they’re accustomed to receiving faxes from us,” but that means of communication would have been temporarily blocked without the stay, he said.
Underestimated Costs?
In its report and order, the FCC estimated that compliance would cost a business one hour of work per year.
But association and business lawyers said the government has severely underestimated the costs.
Susan E. Fox, executive director of the American Association of Law Libraries in Chicago, said she fears compliance would be “very costly, not just in dollars but also in human resource terms.”
Jack L. Harris, executive director of the Virginia Trial Lawyers Association, described the impact on his office: “You’re looking at changing the records on 2,700 members and another several thousand nonmembers you maintain in your data base and who do business with you.”
That would require 300 to 400 hours of staff time to set up, and at least 100 hours a year to maintain it, Harris said. “It would cost many thousands of dollars to make the change and then several thousand a year just to maintain it.”
In the view of Harris and many others, the requirements are unnecessary. Legitimate businesses and associations would not knowingly irritate customers and members by bombarding them with unwanted faxes, they say.
Mayes, in-house counsel for SallieMae Inc., said the new rules would require establishing “a whole new tracking that nobody has in their system. When I look at our system, which is student lending, we literally have a billion customers.”
At the start of each school year, SallieMae is inundated with last-minute applications for loans, and the fax machine is the major vehicle for working out the financing, she said.
The written consent requirement will slow the process up significantly — particularly for the procrastinators, Mayes said.
Debra L. Perkins, executive vice president and general counsel for the Independent Insurance Agents and Brokers of America, gave another real-life example.
“My daughter reached the 11th hour on obtaining new automobile insurance,” she said. At Perkins’s request, an agent with whom Perkins does business, faxed her daughter an application, and the deal was concluded without a lapse in coverage.
“If that had happened on Jan. 1, 2005, the agent would not have been able to send my daughter a written application by fax. My daughter didn’t have a business relationship with him — I did.”
Perkins raised a question: “If a customer uses a fax machine at, say, Kinko’s to receive paperwork related to a refinancing, would that be banned under the new rules? Kinko’s presumably would not have the business relationship with the lender — Kinko’s’ customer does. Can the customer give permission for a fax to be sent to the copying company?”
Another question raised by associations and others: Who can give permission for a company’s fax machines to receive faxes? If an employee does so, does a new permission form have to be obtained when a different employee moves to that fax machine?
