FTC Targets VoIP Service Provider for Role in Alleged Unlawful Phone Calls

The Federal Trade Commission (“FTC”) has acted boldly by suing a VoIP service provider, Globex Telecom (“Globex”) and its corporate officers, alleging that their services played a role in subjecting consumers to a barrage of illegal calls tied to a fraudulent credit card interest rate reduction scheme that was operated by a related sister company, Educare Centre Services, Inc (“Educare”). The case is noteworthy because Globex is a platform provider and not a seller or advertiser, which are the usual targets for the FTC. The FTC is responsible for enforcing the Telemarketing Sales Rule (“TSR”), which prohibits certain unlawful practices when placing telephone calls and those that “assist and facilitate” the unlawful practices.

VoIP Service Providers a Growing FTC Target

The FTC has prosecuted service providers in the past for “assisting and facilitating” illegal conduct. In 2013, the FTC brought an enforcement action against CallFire for assisting and facilitating its clients who used CallFire’s voice broadcasting platform to deliver pre-recorded messages to consumers without consent. The FTC alleged that CallFire knew its system could be used to deliver unlawful pre-recorded telemarketing messages and did not prevent the delivery of pre-recorded telemarketing messages to consumers from whom consent had not been obtained.

More recently, the FTC sued NetDotSolutions, Inc. and TeraMESH Networks, Inc. (“TelWeb”) for facilitating its clients’ illegal robocalls. The FTC alleged the companies wrote software that automated telephone calls and prerecorded messages to consumers, in addition to providing VoIP phone services and servers hosting the software. Per the FTC, billions of calls were placed using their systems in violation of the TSR by two recidivist telemarketers who either “[knew] or consciously avoided knowing” that the calls were unlawful. TelWeb agreed to pay a $1.35 million penalty, cooperate in the FTC’s cases against its clients, provide compliance reports to the FTC for twelve years, submit to compliance oversight by the FTC, and no longer enter into any business relationships with clients utilizing an automatic telephone dialing system.

Heed Warning Signs and Develop Due Diligence Procedures

VoIP and other service providers need to proactively avoid assisting and facilitating conduct that violates the law. Do not ignore warning signs that a client may be using its platform inappropriately and take proactive measures to ensure due diligence by:

• Contractually prohibiting violations of the TCPA, TSR and other telemarketing regulations;
• Developing procedures to perform pre-contract and ongoing due diligence on potential clients; and
• Developing procedures for handling consumer complaints regarding any client misuse of a service platforms.

* Ali Najaf contributed to this post.