697868_56395757The U.S. District Court for the Eastern District of Pennsylvania recently entered a judgment against a telemarketing corporation, NHS Systems, Inc., and five principals, for violating the Federal Trade Commission (FTC) Act and associated enforcement regulations, laid out in the FTC’s Telemarketing Sales Rule (TSR).   The defendants were accused of operating a telemarketing campaign, in which they misrepresented themselves as governmental entities and required consumers to sign up and pay for healthcare programs in exchange for the promise of future tax rebates or other monetary benefits.  In addition to there not being any tax rebates or other benefits associated with the programs, the FTC alleged that the defendants withdrew funds from consumers’ accounts without their approval or any notice thereof.

Court Findings

According to the opinion of the court, the defendants violated § 5(a) of the FTC Act and several TSR regulations by:

  1. expressly claiming or representing that they were calling on behalf of federal agencies, which was false and a material misrepresentation;
  2. unjustifiably offering government grants and refunds, which was false and a material misrepresentation;
  3. assuring consumers that they would not be charged or the charges would be offset by deposits into their accounts, which was materially false;
  4. underrepresenting the cost of joining and maintaining their discount healthcare program; and
  5. charging consumers for the program without notice or authorization.

Court Awards Permanent Injunctive and Monetary Relief

As a result of its findings, the court ordered that the defendants be enjoined from: 1) participating in any future telemarking campaigns; 2) using the billing information collected from consumers in any way contrary to the order; and 3) making, expressly or by implication, any representation that is false or misleading to consumers.  Additionally, the court ordered the disgorgement of all proceeds derived from the alleged TSR violations, in the amount of $6,879,162.22.  All of the named defendants were held jointly and severally liable for the monetary penalty designated by the court, which was ordered to be paid in full within 10 business days from the date of the court’s order.

The complaint against NHS Systems is part of a larger trend of regulatory action within the telemarketing space and is not limited to the FTC.  The Federal Communications Commission (FCC) has similar telemarketing regulations codified in its Telephone Consumer Protection Act (TCPA), which we have previously discussed in this blog.  In light of this action, and the general regulatory trend (on a state and federal level), telemarketers should review their marketing practices (and those of their respective affiliates) to ensure compliance with FTC, FCC and state telemarketing regulations.  Entities that fail to comply with applicable regulations may find themselves facing investigation and possible injunctive and monetary penalties.

If you are interested in learning more about this topic or need to review your telemarketing practices, please e-mail us at info@kleinmoynihan.com, or call us at (212) 246-0900.

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