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FTC Closes PayPal Investigation Over Telemarketing Rule and User Agreement

The Federal Trade Commission (FTC) has released a copy of a letter that it sent to PayPal stating that the agency was closing an investigation into potential Telemarketing Sales Rule (TSR) violations by the company.  This release provides important insights on how companies can design their user agreements to avoid TSR violations.

As background, PayPal had indicated that it planned to make changes to its User Agreement to give the company greater flexibility to make phone calls and send text messages to its users.  Specifically, PayPal’s updated User Agreement stated, “You consent to receive autodialed or prerecorded calls and text messages from PayPal at any telephone number that you have provided us or that we have otherwise obtained.  We may place such calls or texts to (i) notify you regarding your account; (ii) troubleshoot problems with your account; (iii) resolve a dispute; (iv) collect a debt; (v) poll your opinions through surveys or questionnaires, (vi) contact you with offers and promotions, or (vii) as otherwise necessary to service your account or enforce this User Agreement.”  The only way for customers to avoid being contacted in this manner was to discontinue use of PayPal’s services.

The FTC conducted an investigation to determine whether PayPal’s User Agreement was in violation of the TSR.  The FTC stated that PayPal’s revised User Agreement raised two TSR issues.  First, under the TSR, PayPal cannot place telemarketing calls to a number found on the National Do Not Call Registry unless: (1) the consumer has provided express written consent to receive such calls; or (2) PayPal has an established business relationship with the consumer and the consumer has not stated that he or she does not wish to receive outbound telephone calls.  Second, the FTC stated that PayPal would violate the TSR if it made prerecorded telemarketing calls to consumers without obtaining “prior express written consent.”

Furthermore, the FTC noted that PayPal’s updated User Agreement did not adequately obtain “prior express written consent” for three reasons.  First, the agreement did not allow the consumer to specify a phone number to which calls can be placed (the User Agreement instead stated that PayPal may contact a customer at “any telephone number… we [PayPal] have otherwise obtained”).  Second, PayPal’s request for consent was not “clear and conspicuous” because it was buried in a lengthy agreement.  Third, the FTC stated that the written consent obtained from a consumer can only extend to a “specific party,” and does not extend to affiliates and service providers (parties that were mentioned in PayPal’s User Agreement).

On June 29, 2015, PayPal revised the language in its User Agreement to address the FTC’s concerns.  Specifically, PayPal’s updated User Agreement stated that PayPal will initiate “autodialed or prerecorded message calls or text messages at a phone number(s) you [the customer] have provided us [PayPal]” concerning a customer’s account, to investigate or prevent fraud, or to collect a debt.  In addition, PayPal clarified that a consumer does not have to consent to receive communications in order to utilize PayPal’s products.

Following this update, the FTC stated that it would not initiate a TSR enforcement action because PayPal’s revised language addressed the FTC’s TSR concerns, and PayPal did not initiate any telemarketing calls to consumers based on its earlier proposed User Agreement.

In light of this FTC release, companies should take a fresh look at their terms and TSR compliance strategies – including the methods for obtaining consent and phone numbers to make calls to consumers.

How Can We Help?

Our TCPA Working Group brings together more than 25 attorneys in our litigation, communications, and privacy practice areas.  We provide regular TCPA and TSR counseling to clients from a broad range of industries, including technology, healthcare, communications, transportation, and financial services.