ANALYSIS: DC Circuit Dials Back on FCC’s Broadening of Telephone Consumer Protection Act

In July of 2015 the Federal Communications Commission handed down an order that unreasonably expanded the reach of the 1991 Telephone Consumer Protection Act, exposing any business using a telephone to the risk of TCPA liability.

A decision from the United States Court of Appeals for the District of Columbia in ACA International v. FCC, et al. serves to undo some of the damage caused by the FCC’s order.

Among the restrictions provided for by the TCPA, it was those portions of the Act which prohibited the use of an “automatic telephone dialing system” that were adversely impacted by the 2015 order. The law prohibits the use of such devices to make a call to a cellular telephone number absent “the prior express consent of the called party.”

The requirements for consent differ depending on the purpose of the call, such as whether the call is made for telemarketing or debt collection. A caller violating the TCPA can be found liable for statutory damages of $500 per call or $1,500 per call if the caller is found to have “willfully or knowingly” violated the Act. When a TCPA claim is asserted as a class action, the potential statutory damages are extraordinary and there is no limitation provided to protect a business from excessive damages.

Given the dominance of cellphone usage since the 1991 enactment of the TCPA, businesses and trade associations had petitioned the FCC for rulemaking to define the type of equipment that qualified as an “automatic telephone dialing system” (an “ATDS”) so they could tailor their operations accordingly. Instead of laying out rules clarifying what constituted an ATDS, the FCC’s order expanded the scope of covered devices.

Court Rejects Broad Interpretation of ATDS

The D.C. Circuit’s ruling sets aside the FCC’s broad interpretation of an ATDS, finding that the 2015 order “would appear to subject ordinary calls from any conventional smartphone to the Act’s coverage, an unreasonably expansive interpretation of the statute.”

One of the most problematic interpretations rejected by the decision was the 2015 order’s pronouncement that an ATDS included telephone systems that had the potential capacity to operate as an ATDS, even if the system was not presently used as an autodialer. Under this now rejected interpretation, a business became exposed to TCPA liability if it used a phone that never autodialed but could become an autodialer through the addition of hardware or software, regardless of whether it purchased the additions.

In tossing out that interpretation, the Court noted “[i]t is undisputed that essentially any smartphone, with the addition of software, can gain the statutorily enumerated features of an autodialer and thus function as an ATDS,” under the FCC’s interpretation.

Since the FCC’s “potentiality” interpretation effectively rendered any smartphone an ATDS, “the statute’s restrictions on autodialer calls assume an eyepopping sweep,” a sweep the Court concluded was not intended when Congress enacted the TCPA. Specifically, since the FCC’s interpretation would encompass so many devices, like a smartphone, the FCC exceeded its authority when it laid out its expansive definition of an ATDS.

“It cannot be the case that every uninvited communication from a smartphone infringes federal law, and that nearly every American is a TCPA-violator-in-waiting, if not a violator-in-fact,” the Court wrote.

The decision also points to the findings Congress enumerated when it enacted the TCPA, which identified 30,000 businesses actively telemarketing goods and services and “[m]ore than 300,000 solicitors [who] call more than 18,000,000 Americans every day.” These findings, the Court reasoned, are informative of the intended breadth of the statute.

The FCC’s expansive interpretation of what constitutes an ATDS would extend its reach to hundreds of millions of callers and is therefore “incompatible with a statute grounded in concerns about hundreds of thousands of ‘solicitors’ making ‘telemarketing’ calls on behalf of tens of thousands of ‘businesses.’”

Aside from the ridiculously broad scope of what constitutes an ATDS, the Court found fault with other aspects of the 2015 order that failed to provide a “‘comprehensible standard’ for articulating the applicability of a statutory category.” Among the offensive interpretations was the FCC’s ambiguous guidance concerning a device’s ability to generate random or sequential numbers and then dial those numbers, a component of the TCPA’s statutory definition of an ATDS.

Noting that the FCC has over time indicated that an ATDS must be able to generate and dial random or sequential numbers, the commission also stated that a device can still be an ATDS even if it lacks such capacity. “So which is it: does a device qualify as an ATDS only if it can generate random or sequential numbers to be dialed, or can it so qualify even if it lacks that capacity?” The FCC, the Court finds, cannot adopt both interpretations.

The 2015 order as well as prior FCC orders noted that a “basic function” of an ATDS is the device’s capacity to dial without human intervention. But the FCC equivocated here as well, declining to rule that a device is not an ATDS if it lacked the capacity to dial without human intervention. “Those side-by-side propositions are difficult to square,” the Court wrote.

Another item of ambiguity concerned the FCC’s statement that an ATDS’ “basic function[]” is the ability to “dial thousands of numbers in a short period of time.” The Court criticized the ruling because it too provided “no additional guidance  . . . whether that is a necessary condition, a sufficient condition, a relevant condition even if neither necessary nor sufficient, or something else.” The 2015 order also failed to specify what qualified as a “short period of time.”

Reassigned Numbers – Called Party Remains as Present Subscriber

Once a business obtains consent to communicate using an ATDS, the person who provided the consent may cease using that telephone number which is then reassigned to a third party. Businesses that mistakenly call these “reassigned” telephone numbers have found themselves facing TCPA claims. The Court rejected the argument that the caller need only have consent from the party it intended to call. Instead, the decision leaves in place the FCC’s interpretation — that consent is needed from the current subscriber to the reassigned number.

Reassigned Numbers – One-Call Safe Harbor Vacated

The 2015 order provided that callers dialing a reassigned cellular telephone number for which they had previously received consent could make one call post-reassignment free from liability. The Court rejected this “safe harbor” provision finding the FCC’s rationale behind it flawed.

The genesis of the one-call safe harbor came from the FCC’s “reasonable reliance” approach in construing the requisite “prior express consent” needed to make TCPA compliant calls. In determining whether the caller has received the requisite prior express consent, the FCC considers “the caller’s reasonableness in relying on consent.” The safe-harbor provision failed, the Court wrote, because the FCC gave no explanation why that reasonable reliance ends after the first call. After all, the called party may not answer the call or even if they do, may not explain that the caller reached a reassigned telephone number.

 Revocation of Consent – 2015 Order Remains, with Welcome Guidance

One troublesome area from the 2015 order remains in place — consumers can continue to revoke consent to receive ATDS calls “at any time and through any reasonable means.” But the decision notes that the 2015 order does not foreclose the ability of callers to deploy “clearly defined and easy-to-use opt-out methods” for consumers who no longer wish to receive ATDS calls. If the called party is offered these methods, “any effort to sidestep the available methods in favor of idiosyncratic or imaginative revocation requests might well be seen as unreasonable.”

The Court’s guidance can assist businesses in developing procedures to resolve the problems associated with revocation being communicated through nondescript channels.

The decision also clarifies that while the 2015 order precludes callers from unilaterally imposing revocation requirements, the FCC conceded that its 2015 order “did not address whether contracting parties can select a particular revocation procedure by mutual agreement.” The result, the Court added, is that “[n]othing in the [FCC’s] order thus should be understood to speak to parties’ ability to agree upon revocation procedures, leaving open the option for the caller and the called party to mutually agree (such as through contract provisions) to a revocation procedure.

Healthcare-Related Exemption – No Change

The decision keeps in place the exemption for healthcare-related “calls for which there is exigency and that have a healthcare treatment purpose.” That exemption does not extend to calls “that include telemarketing, solicitation, or advertising content, or which include accounting, billing, debt-collection, or other financial content.”

Webinars to Break Down DC Circuit Ruling

Join me next week when I will participate in two webinars explaining the D.C. Circuit’s ruling.

On March 19 at 2 p.m. ET, AccountsRecovery.net will present a webinar in which I will join a panel of legal experts to parse the ruling, what it means for the accounts receivable management industry and what its participants should consider as part of their operations. Register for the webinar here.

On March 22 at 2 p.m. ET, I will participate in a webinar offered by the American Bar Association’s Consumer Financial Services Committee for its members. To join the webinar, click here.

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Donald Maurice provides counsel to the financial services industry, successfully litigating matters in the state and federal courts in individual and class actions. He has successfully argued before the Third, Fourth and Eighth Circuit U.S. Courts of Appeals, and has represented the financial services industry before several courts including as counsel for amicus curiae before the United States Supreme Court. He counsels clients in regulatory actions before the CFPB, and other federal and state regulators and in the development and testing of debt collection compliance systems. Don is peer-rated AV by Martindale-Hubbell, the worldwide guide to lawyers. In addition to being a frequent speaker and author on consumer financial services law, he serves as outside counsel to RMA International, on the governing Board of Regents of the American College of Consumer Financial Services Lawyers and on the Governing Committee of the Conference on Consumer Finance Law. From 2014 to 2017, he chaired the ABA's Bankruptcy and Debt Collection Subcommittee.