FTC Announces First Case Highlighting Application of Do Not Call Provisions to Corporate Affiliates

Discount Health Card Seller and Its Telemarketer to Pay Combined $350,000 Penalty for Do Not Call Violations

For Release

A seller of discount health and prescription drug cards and its telemarketer will pay civil penalties of $300,000 and $50,000, respectively, to settle Federal Trade Commission charges that they have been violating the Do Not Call (DNC) provisions of the Commission’s Telemarketing Sales Rule (TSR), and will be prohibited from similar conduct in the future, the agency announced today. At the Commission’s request, the U.S. Department of Justice (DOJ) filed the complaint and proposed stipulated consent orders in Federal District Court in New York City. This is the Commission’s first case to highlight the application of DNC provisions to corporate affiliates.

The FTC alleges that Peoples Benefit Services, Inc. (PBS), a seller of prescription drug discount cards, dental discount cards, health-related discount cards, and an online medical referral service to consumers, authorized its telemarketer, Malvern Marketing, LLC, d/b/a Phase One Marketing (POM), to call consumers on the DNC Registry on the basis of an alleged established business relationship (EBR) with PBS or its corporate affiliates. According to the FTC, tens of thousands of those calls constituted violations of the TSR because the defendants did not meet their burden of proving an EBR with those affiliates’ consumers. The FTC also alleged that the defendants violated the Fee Rule provision of the TSR’s DNC Rule because PBS did not pay a fee to access numbers on the DNC Registry, but instead accessed the Registry using the Subscription Account Number (SAN) of one of its corporate affiliates, a separately incorporated insurance company selling insurance products. The FTC also alleged the defendants violated the TSR by continuing to call tens of thousands of consumers who had asked to be placed on their entity-specific do-not-call lists, and abandoning more phone calls than permitted by law.

“Sellers who try to skirt the Do Not Call rules on technicalities are asking for trouble,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. “We’re serious about enforcing all provisions of the Telemarketing Sales Rule.”

Case Background

According to the FTC, PBS hired POM to place outbound calls to consumers to sell its products. Most of these PBS products were health-related discount cards: in exchange for a monthly fee, consumers received discounts on prescription drugs, and/or medical or dental care, from participating providers.

PBS provided consumer leads to POM, which POM expected PBS to first cross-check against both the National DNC Registry and PBS’s own do-not-call list of telephone numbers for consumers who specifically asked not to be called by PBS. According to the complaint, Defendants called tens of thousands of telephone numbers on the Registry in violation of the TSR. In numerous instances, PBS did not have an EBR with the consumers called. Instead, the defendants called consumers who had recently purchased insurance products, including accidental death, term life and whole life insurance, sold by affiliates of PBS. But such consumers did not reasonably expect telemarketing calls from PBS, given the identities of the affiliates involved and the nature and type of goods or services offered. For example, consumers who had recently purchased life insurance from a PBS affiliate operating under a different name would not reasonably expect to receive a call selling drug discount cards offered by PBS. Defendants thus did not have an EBR for calls to tens of thousands of consumers’ telephone numbers on the DNC Registry.

The complaint also alleges for the first time a Fee Rule violation based on the use of an affiliate’s SAN. PBS caused POM to call telephone numbers in area codes across the country, without first paying the required annual fee for access to the telephone numbers within such area codes that are included in the DNC Registry. Instead, PBS accessed such numbers through an insurance affiliate’s SAN. PBS, however, is a separately-incorporated entity that markets a distinct product under a different name than its affiliate, and that difference in name reflects more than a geographic distinction; it identifies a different product. PBS and POM are both liable for this Fee Rule violation.

In addition, the Commission’s complaint charges the defendants with ignoring consumers’ requests to put them on PBS’s entity-specific do-not-call list, and abandoning automatically dialed calls more often than allowed by the TSR.

Terms of the Court Orders

The proposed stipulated final orders settling the Commission’s complaint prohibit both defendants from future violations of the TSR, including provisions regarding the National DNC Registry, entity-specific do-not-call requests, abandoned calls, and the Fee Rule. The orders also impose civil penalties on the defendants: PBS will pay $300,000, and POM is subject to a $120,000 civil penalty, with all but $50,000 suspended due to its inability to pay. The POM penalty is subject to an avalanche clause, and the entire $120,000 will be due if it is found to have misrepresented its financial condition. Finally, the proposed orders contain record-keeping and monitoring provisions to ensure the defendants’ compliance.

The Commission vote to refer the complaint and proposed consent decrees to the DOJ for filing was 5-0. The complaint and proposed consents were filed on June 15, 2006, by the DOJ at the request of the FTC and are subject to court approval. The filing was made in the U.S. District Court for the Southern District of New York.

The FTC is committed to ensuring compliance with the National Do Not Call Registry. To date, the Bureau has brought 28 law enforcement actions for various DNC-related violations. Consumers can register their phone number on the Registry either online at www.donotcall.gov or by calling toll-free 1-888-382-1222 (TTY 1-866-290-4236) from the number they wish to register.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant actually has violated the law. The case will be decided by the court.

NOTE: Stipulated judgments are for settlement purposes only and do not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.

Copies of the complaint and two consent orders in settlement of the court action are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov/ftc/complaint.htm. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to thousands of civil and criminal law enforcement agencies in the U.S. and abroad.

Contact Information

Media Contact:
Mitchell J. Katz
Office of Public Affairs
202-326-2161
Staff Contact:

Barbara Anthony, Michele Stolls, or Thomas A. Cohn
FTC Northeast Region
212-607-2829