End of the Line?

New law forces charities to rethink fund raising by phone

Indianapolis’s public-broadcasting station, WFYI-TV, used to count on getting about $120,000 a year from phone

appeals to potential donors. This year, it has raised only $30,000 from such solicitations — and its telemarketing woes could be an early warning about the problems charities nationwide might face as the public grows increasingly angry about unsolicited calls.

Like other charities throughout Indiana, the station has been reeling from the effects of the state’s “do not call” list, which allows people to say they don’t want any calls from paid solicitors, including those hired by charities. A national registry of people who don’t want calls takes effect next month, but unlike in Indiana, charities will continue to be allowed to call potential donors.

Theresa D. Tetrault, WFYI’s director of annual giving, says she hopes to recover the lost income by hiring staff members to make the calls instead of using a paid contractor, thus avoiding the do-not-call ban. But she worries that telemarketing may simply be losing its effectiveness as a fund-raising technique. “Even if we didn’t have the law, we’d have the climate,” she says.

48 Million on ‘Do Not Call’ List

More than 48 million Americans have signed up for the national do-not-call registry. While the law exempts all charitable calls, even those made by for-profit solicitors, that distinction may be lost on many members of the public. A Harris telephone poll of 1,011 people in mid-August found that more than a third — 37 percent — thought that the federal do-not-call list also applied to charity calls. Concerns about irritating potential donors are prompting a few charities to avoid making phone appeals to anyone who has signed up for the do-not-call lists maintained by state governments, even when they are not legally obligated to do so.

What’s more, federal laws will soon require telemarketing companies, including those calling on behalf of charities, to meet new standards, such as promptly putting a live caller on the phone when a person answers, and discontinuing services that block people from seeing the phone number of the person calling. Telemarketing companies say complying with these rules could require expensive new equipment, and that they will probably pass millions of dollars in new costs on to charities and others who hire them.

Early Signs

While it’s too early to know the full impact that the national telemarketing laws will have on charities, many observers say what has happened in Indiana, which was among the first to apply a do-not-call list to some charity calls, could provide clues. Arkansas, Tennessee, and North Dakota have similar rules: Charities can ignore the lists as long as they use their own staff members or volunteers to make calls. But if they hire an outside solicitor, the company may not call anyone on the state lists. Each call they make to anyone on the lists subjects the telemarketer to thousands of dollars in fines.

In two of these states — Indiana and North Dakota, whose law takes effect November 1 — charity fund raisers are challenging the statutes in court, arguing that they violate First Amendment protections of free speech by limiting a nonprofit organization’s ability to get out its message. Some specialists in First Amendment law say they expect the nonprofit groups to prevail. But many fund raisers are nervously watching the cases, because a win for the states would probably lead more states to follow suit. In all, 27 states maintain do-not-call registries, and Indiana regulators say they have gotten many inquiries from attorneys general in other states who want to use the law as a model.

The idea behind Indiana’s law was to limit the exceptions to what calls were covered, according to Staci Schneider, a spokeswoman for Indiana’s attorney general, Steve Carter.

“What people are rebelling against are these advances in technology that result in marketers calling massive numbers of people,” Ms. Schneider says. “What was intended was to protect those local charities who are calling on their own to reach the people they need to reach, versus the mass effort of a professional fund raiser.”

Becoming a Hero

Nearly 1.3 million phone numbers are listed on Indiana’s do-not-call list, about half of the households in the state.

Rita DeKlyen, director of development at Special Olympics of Indiana, says the law’s popularity with the public has prompted her to warn Special Olympics groups in other states about the potential for new telemarketing limits.

“Our attorney general, who put this law into action, is really looked at as a hero,” Ms. DeKlyen says. “People love him for this. What we try to tell some of our other chapters is that other AG’s are going to be looking at Steve Carter and thinking, boy, they want to be heroes, too.”

Last year, Special Olympics of Indiana missed its $400,000 telemarketing target by $80,000, Ms. DeKlyen says. “The only thing we were rather lucky about is that telemarketing is a small percentage of our income,” which was $2.4-million, she adds. “When this do-not-call list started, the revenues just started going down and down and down.”

National and regional charities have also been affected by Indiana’s law, although to a lesser degree. Dennis McCarthy of Share Group, a telemarketing company in Somerville, Mass., that raises money for dozens of national charities, says fund-raising revenue in Indiana has dropped by one-fifth to one-quarter for his clients. While Indiana is not a state where national charities typically raise much money, Mr. McCarthy says he is concerned about what would happen if the do-not-call rule were enacted in more populous states, such as California, Illinois, Michigan, or New York. “The impact would be dramatic,” he says.

Using Volunteers

Since Indiana’s law went into effect, several charities in the state that had been relying on telemarketing companies to handle calls for them have decided to use their own employees or volunteers instead.

Bishop Zwenger High School, a nonprofit Catholic school in Fort Wayne, decided to make the switch because so many of its potential donors had joined the do-not-call list. Dennis Fech, development director, says the school recruited about 35 student volunteers for a two-week phone campaign and provided them with training. In the past year, the students have raised $34,000 for its annual fund over the phone, the most ever.

Mr. Fech says he’s now glad the law helped prompt him to make the change. “It’s much easier to get rapport going with our students,” he says. “You have a more personal conversation with each individual and it’s certainly beneficial to us.”

The change has also proven to be cheaper than using a telemarketing company, which cost the school about $3,500 for every 1,000 people called. The school has been able to use a room in its building that has a dozen phone jacks as its calling center, with students making calls in shifts. Mr. Fech says the school’s long-distance bill goes up a few hundred dollars during the campaign.

The Indianapolis Symphony has also saved money by hiring staff members to make calls to potential donors. The symphony now spends just 39 cents for every dollar of revenue on overhead, rather than the 61 cents per dollar pocketed by its telemarketer, says Bob Swaney, development director.

All told, the symphony has brought in $400,000 this year, almost triple what telemarketers raised in the past. Asking donors for contributions “is different than selling a product,” he says, adding that the charity’s callers can provide more in-depth information about the symphony than the callers who work for a telemarketing company could give. “Our donors ask a lot of questions. They tend to get into conversations with the reps,” he says.

Potential Benefits

Indeed, some observers believe Indiana’s law, and others like it, could prove a boon for charities that have grown too dependent on strangers to raise money for them. “Commercial telemarketing was one of the worst things that ever happened to nonprofit fund raising,” says Henry D. Lewis, a fund-raising consultant in Washington. “It allowed charities to forget about the relationship-building that is supposed to be part of development. With very few exceptions, I believe that any kind of fund raising done for nonprofits by outside commercial entities should be banned.”

Others, however, contend that nonprofit organizations, particularly small ones, need as many options open to them as possible to help them raise the funds they need to do their work.

“We’re a staff of 13,” says Ms. DeKlyen of Indiana’s Special Olympics. “There’s no way we could make calling work” without hiring an outside company that specializes in telemarketing. Several years ago, the charity tried to set up a phone bank to raise money for a special event, but the effort was not a success, she says. “It was very difficult to depend on our volunteers.”

Special Olympics has continued using its outside telemarketing company, despite the downturn in revenue from such calls, she says. Ms. DeKlyen adds that in the past few months her organization has seen telemarketing income pick up slightly, which she takes as a sign that phone appeals could become more lucrative. “Hopefully, the people who want to be on the do-not-call list are now on it,” she says. “Now the company can build relationships with people who are willing to be called.”

Stuart Discount, head of a Philadelphia telemarketing company and chairman of the American Teleservices Association’s government-affairs committee, says that for some charities, telemarketing is still the most efficient way to raise dollars.

He says many of the nonprofit groups he works with have expressed concern over the increasing hostility of donors to phone calls.

“They all want to know, What’s the future of telemarketing? Is it something they should get out of? Should they try to convert donors to a direct-mail program?” Mr. Discount says.

His advice is to ask hostile donors for permission to call once a year to describe the charity’s work and make the case for why contributions are needed. Failing that, he says, groups should ask whether they may send a solicitation in the mail. He also suggests that charities use the opportunity to try to persuade donors to sign up for monthly-giving programs, through which a donor’s credit card is charged automatically for a small sum once a month, as a way to cut down on the need for frequent fund-raising appeals.

Legal Challenges

In Indiana, four nonprofit groups that hire for-profit telephone solicitors — the Indiana Association of Chiefs of Police, Indiana Troopers Association, National Coalition of Prayer, and Paralyzed Veterans of America — are suing the state, claiming that the law violates their First Amendment rights. Errol Copilevitz, a Kansas City lawyer who is representing the groups, says the state is wrongly trying to divide charities into two groups based solely on who pays the caller to make the pitch. “It’s not who signs the paycheck that determines whether a call is an invasion of privacy,” he says.

Mr. Copilevitz is also fighting North Dakota’s application of its do-not-call list to telemarketing companies that represent nonprofit groups. The North Dakota lodge of the Fraternal Order of Police and the state office of the Veterans of Foreign Wars have sued, saying it is unfair for the state to exempt calls made on behalf of politicians and even some commercial calls while restricting calls made by companies on behalf of charities.

Robert S. Peck, a Washington lawyer who is co-chairman of the First Amendment Committee of the American Bar Association, says the argument has merit, noting that the Supreme Court has ruled against a similar prohibition before, including an election-law case that prohibits states from making a distinction between volunteers who gather ballot signatures and workers who are paid to gather them.

Furthermore, even as Indiana’s law bars some charity calls, it provides exceptions for certain types of commercial calls, such as selling insurance, from the ban.

“To throw everyone into the same ballpark does seem to be an infringement on First Amendment rights,” Mr. Peck says.

Winning the lawsuits, however, may prove only part of the battle, some fund raisers say.

The Professional Fire Fighters Union of Indiana decided to drop its lawsuit against the state’s telemarketing ban — and to get out of making telephone solicitations altogether — after hundreds of people called the organization’s president, Thomas Miller, to complain.

Mr. Miller, who has since stepped down from the presidency of the group, says that while he still believes the lawsuit would have been successful, proceeding with it wouldn’t be wise. He adds, “You’ve got to listen to your membership when they say they’re PO’d.”