New rules! To call or not to call, that is the question

(August 2008) Cold-calling can be a very effective tool to find new clients and sell new products or services to current clients. Smaller financial institutions, dealers, agencies and their registered or licensed individuals, including those who act independently, often rely on telemarketing organizations.

These companies or individuals provide technical resources and personnel to qualify leads in a specific geographic area, or from a list of contacts (those who attended a seminar, for example) to determine their interest in learning more about certain products or services. Others use internal administrative staff or part-time staff to do this work. Although there are some telemarketing prohibitions on cold-calling — calling after certain hours, for example — there is little to no process or recourse in place for complainants or for enforcement, until recently.

Starting September 30, 2008, in response to actions taken in the United States and numerous complaints about telemarketers and their business practices, the Canadian Radio-television and Telecommunications Commission (the CRTC) will maintain a “Do Not Call” (DNC) list of those who do not wish to receive unsolicited telemarketing calls.

Advisors are telemarketers under the CRTC’s definition. Any telemarketer or campaign that fails to properly exclude phone numbers on the list may face penalties for a large number of individual breaches. Access to the DNC list can be purchased on a limited basis — access to query up to 50 numbers, or by subscription for certain area codes and periods of time. The maximum penalty for each breach is $1,500 for calls made by an individual and $15,000 for corporations, all of which is payable to the Federal Receiver General.

There is no cap on the aggregate fines that can be imposed.

One would expect, or at least hope that the CRTC will exercise discretion initially in assessing their administrative fines. The nature of any breach, the number and frequency of complaints or violations, the deterrence factor and the potential for future violation are to be considered by the CRTC when determining the administrative penalty to be imposed. Given that the CRTC is planning to hire 150 staff to establish and maintain the DNC list and enforce these new requirements, there is little doubt that administrative penalties will be assessed after the honeymoon period is over.

While the new rules applying to telemarketing are too complex to cover comprehensively in this article, there are a few key rules that you and your staff need to be aware of:

• If a third party, such as a telemarketing company is hired, both the telemarketing company and its customers (i.e. you) are liable for any breach.

• If a company uses employees to telemarket, both the employees and the employer are liable for breaches.

• If a current customer or potential customer has not registered on the DNC list, the new regime does not apply.

• If the customer or potential customer is on the list, the individual needs to complain in a certain way to the CRTC, generally within 14 days, or the violation cannot be punished by the CRTC.

• The CRTC has two years from the date of the complaint to charge the telemarketer with a violation and impose a penalty.

Establishing and implementing written policies, providing adequate training, proper use of the list, maintaining records, your own internal DNC lists (discussed below) and other steps can help you establish a due diligence defence.

As one would expect, cold-calling and contacting existing customers is permissible when certain criteria are met, even if their numbers appear on the DNC list. Calling individuals who have purchased services or who have made an inquiry or application about a product or service in the past six months, along with those who have a written contract (existing or one which has expired within the preceding 18 months) fall into the category of those with whom you have “existing business relationships.”

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Despite these exceptions, every person who telemarkets must maintain an internal do-not-call list and refrain from contacting any person who has asked to be placed on this list. Contacting someone on this list is also a breach and the administrative penalties discussed above can be applied.

An individual who has expressly consented to being contacted can be called if their express consent specifies the number or numbers they can be reached at for your purposes. A record of consent, in the case of oral consent, or other evidence should be maintained in your files. Express consent can be withdrawn at any time.

If you have existing telemarketing service providers or if you conduct telemarketing campaigns internally, now is the time to review the new rules carefully and determine what changes may be needed to your service provider contracts, client records and marketing literature.

Richard E. Austin is counsel with Borden Ladner Gervais LLP in Toronto, and specializes in financial services, with a particular emphasis on registration and compliance matters. RAustin@blgcanada.com

(08/12/08)