The Existing Business Relationship Exception
Most companies who engage in any kind of telemarketing are by now very
aware of the federal "Do Not Call" (DNC) laws and the duty to "scrub" lists
prior to calling. There are also important exceptions to this law, one of which
is the Existing Business Relationship (EBR) exception.
Under the federal DNC laws, a seller may make calls to persons with whom they
have an EBR, whether or not that person's telephone number appears on the
federal DNC list. An EBR arises whenever a consumer contacts a seller about
that seller's goods or services and gives his or her telephone number for the
seller to respond. At that point, the seller is free to telephone that consumer
for a period of three months with no requirement to check whether the
consumer's telephone number appears on the federal DNC list.
This exception to the federal DNC laws is intended to allow businesses to
respond to consumer inquiries made in the ordinary course of business without
fear of violating the law.
Naturally, many of these consumer inquiries are generated by the business's own
marketing and lead generation efforts. Thus, the EBR exception goes
hand-in-hand with lead generation.
Lead Generation Companies
What about companies whose business it is to generate leads that are
sold to other companies? In that instance, the consumer is really not inquiring
about the goods and services offered by a particular seller. Rather, they are
usually responding to a third-party advertisement or direct marketing piece
about a good or service in general.
An example is an email offer for refinancing a home mortgage at a lower
interest rate - "fill out this short form and you'll receive offers from three
lenders competing for your business" - with no reference being made to a
If a consumer responds to third-party lead generation, the lead generator then
sells the contact information to the sponsoring seller or to the highest
bidding seller that can meet the consumer's need. Certainly, there has been
some inquiry-based business relationship established.
However, there technically has been no consumer-initiated inquiry to the seller
- all consumer contact has been with the lead generator. To whom does the EBR
exception apply? The seller? The lead generator? Both?
The FTC's Opinion
On July 19, 2006, the FTC released a Staff Advisory Opinion addressing this
issue, at least in the context of internet-based lead generation.* The FTC
stated that, in general, the EBR exception would not apply to the seller where
the consumer responded to a lead generator.
The rationale for the opinion is as stated above: because the consumer did not
respond directly to the seller, he has no relationship with the seller.
Therefore, the EBR exception cannot apply under the express language of the
However, the staff carved an interesting, and potentially far reaching,
exception to that general rule. Despite the express language of the statute,
the FTC staff stated that it would likely take no action against a seller who
utilized a lead generator so long as the lead generator disclosed two things
before the consumer was required to supply their telephone number to the lead
generator: (1) That the consumer would receive telemarketing calls as a
consequence of supplying their telephone number to the lead generator; and (2)
The maximum number of entities from which the consumer would receive calls.
The opinion further stated that the number of entities disclosed should be
limited only to those who truly "matched" the consumer's needs. Mentioning a
catchall list of hundreds of potential seller/callers would not suffice.
What to take away from the opinion?
The most encouraging part of this advisory opinion is the FTC's awareness that
the express language of the federal DNC laws does not effectively address many
real-world situations. In fact, strict application of the language can
frustrate a consumer's expectations and unreasonably limit their options in the
In recognition of the law's shortcomings, the FTC is willing to use affirmative
non-enforcement of the law as a tool to extend a kind of special exemption to
sellers who take reasonable measures to ensure that the ultimate goal of those
laws, protecting a consumer's expectation of privacy, is served.
When a consumer responds to any type of inquiry-based marketing, there's a
reasonable expectation that they will receive a response. In the context of
lead generation companies, the consumer is clearly not expecting a response
from the lead generator, but from companies that provide the good or service
the consumer wants.
However, it is equally true that a consumer does not intend to "open the
floodgates" to calls from an unlimited number of sellers. In light of both of
these concerns, the FTC's opinion is a well-reasoned approach that balances
consumer privacy with realistic consumer expectation.
What should you do?
Lead generators should immediately modify their internal practices, policies,
and procedures to adhere to the FTC's opinion. Careful consideration should be
given to the two disclosures mandated by the FTC.
Make certain that any published material intended to generate an inquiry
includes those two disclosures. With internet lead generation, it would be
advisable to require the consumer to click checkboxes acknowledging their
permission to being contacted by telephone.
Sellers utilizing third-party lead generators should examine the lead
generator's practices to ensure they comply with the FTC's opinion letter.
Ideally, the contract for the lead generation services should specify that the
lead generator must meet the requirements set out in the FTC advisory opinion
and should provide indemnification for the seller in case the lead generator
fails to comply.
Additional article commentary may be found at
Scott Martin is the COO and house legal counsel for Data Partners Inc, a
leading provider of direct marketing data solutions. The full text of the FTC
Advisory Opinion discussed in this article may be found at
*Footnote: It is important to note that Staff Advisory Opinions are non-binding
authority, meaning no court or FTC commissioner is bound by the opinions
expressed by the staff. Also, the opinions are limited to the specific facts
set out in the opinion. But, the opinions are generally a helpful and reliable
indication of what the FTC would likely do in a given situation.
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