New Telemarketing Law Called Too Restrictive by Some Fund Raisers

A law that gives the Federal Trade Commission new power to regulate appeals made by telemarketers on behalf of charities is drawing mixed reactions from fund raisers.

When the federal agency issued sales-call rules in 1995, it exempted calls made by or for nonprofit groups. Now, charity appeals are subject to those rules, plus new disclosure requirements laid out in the law. According to the statute, solicitors must “promptly and clearly” state that the purpose of the call is to ask for donations, and they must state the name and mailing address of the charity on whose behalf they are calling. The law also says callers must make “other disclosures as the Commission considers appropriate.”

The rules, which are part of a broad anti-terrorism bill signed by the president last month, are effective immediately and will expire at the end of 2005, unless Congress renews them.

The commission has not yet spelled out what, if any, additional disclosures it may require under the new law.

Critics in the telemarketing industry say the charitable-solicitation rules are burdensome and will be costly to charities because calls will take longer to conduct and be less likely to engage potential donors. Most worrisome to telemarketing officials is the commission’s new power to draft additional disclosure rules as the agency sees fit.

“That’s a wide-open door that essentially says, ‘If you are making calls on behalf of charities, the federal government is taking over, and it can ask for whatever it wants,’” says Lee M. Cassidy, executive director of the Direct Marketing Association Nonprofit Federation, a trade group in Washington that represents about 500 charities that solicit donors through direct mail, telephone appeals, and the Internet.

But some nonprofit leaders and telemarketers say the law requires little beyond what already is standard practice in solicitation calls. And, some add, federal rules may actually help smooth out the differences among the regulations governing appeals in thousands of state and local jurisdictions.

“I’d welcome the FTC involvement in setting a national standard,” says Dennis J. McCarthy, president of Share Group, a fund-raising company in Somerville, Mass.

Anti-Terrorism Bill

The charitable-solicitations provision was originally contained in a bill introduced by Sen. Mitch McConnell, Republican of Kentucky, early last month. No action on the bill occurred until key elements of it were put into a wide-ranging piece of anti-terrorism legislation not long before it was passed by both houses. The law, known as the USA Patriot Act, expands the government’s ability to gather information in the hunt for terrorists.

The charitable-solicitations bill was intended to deal with problems of fraudulent fund-raising that were expected to be “dramatically worse” following the attacks on September 11, according to a written statement from Mr. McConnell’s office.

But some nonprofit leaders and telemarketers are skeptical that the new law offers any more ammunition in the fight against fund-raising fraud or terrorism. Instead, they contend, it simply piles another layer of regulation onto charities that already are subject to myriad state and local fund-raising laws.

“This is not going to help catch the bad guys,” says Mark J. Fitzgibbons, general counsel for American Target Advertising, a fund-raising consulting company in Manassas, Va. “This is just another attempt to make it more cumbersome for legitimate charities to communicate with people.”

Constitutional Issues

What’s more, say Mr. Fitzgibbons and other lawyers who monitor telemarketing regulations, the new rules may violate free-speech rights guaranteed by the Constitution, depending on how the law is enforced and what other disclosure requirements the FTC may add to it.

The Supreme Court and lower courts have repeatedly said that the solicitation of gifts — whether done by a charity or by a for-profit business on a charity’s behalf — is a form of expression covered by the Constitution’s protection of free speech. Thus, the courts have argued, regulation of the activity needs to be minimal.

Tyler Prochnow, a Kansas lawyer who serves as legal counsel for state legislation for the American Teleservices Association, a telemarketing trade group, says that the new law raises an additional constitutional question: Did Congress exceed its authority in giving the FTC such broad discretion to craft disclosure rules?

“The legislature must define the parameters in which an agency can act,” Mr. Prochnow says. “This kind of unfettered discretion — saying you can add anything else you think is necessary to solve a perceived problem — is not sufficient and does not pass constitutional muster.”

But legal experts, including Mr. Prochnow, say a challenge of the new law is unlikely, at least until the FTC acts and charities and professional fund raisers have time to examine the regulations. Because Congress held no hearings on the issue and tacked the rules onto the fast-moving anti-terrorism bill, the telemarketing industry was caught off guard by the new law, and fund raisers are scrambling to comply.

Revising Scripts

Some fund raisers, like Sarah Wimsatt, assistant director of annual giving at Bellarmine University, in Louisville, Ky., are quickly rewriting the scripts that solicitors use during telephone appeals.

Typically, says Ms. Wimsatt, Bellarmine officials instructed students who volunteer to make calls during telephone campaigns to talk with potential donors about the university first, and then ask for money. The solicitation, she says, would come about 30 seconds into the conversation. Now, she says, students will say right away that they are calling on behalf of the annual fund.

“The idea had been, let’s brag about how wonderful our school is, and once they agree, we say, wouldn’t you like to help?” says Ms. Wimsatt, who adds that she does not have major concerns about how the new law will affect her institution’s fund raising.

But Kelly B. Browning, executive vice president of the American Institute for Cancer Research, says changing appeals to fit the new rules will probably lead to a drop in the percentage of people who donate in response to a call. He says that the more statements solicitors are required to make up front, the greater the likelihood that people receiving the calls will lose interest or hang up before the fund raiser gets to what he describes as the meat of the information: what the nonprofit group does and how the donor’s money can help. And, he says, having to make more calls or longer calls means charities will have to spend more money to run telephone campaigns.

“Having to say who you are and who you are calling on behalf of is not a problem — most of us probably do that anyway,” says Mr. Browning, whose organization raises about $7-million each year through telephone solicitations. “The problem is that the next thing you have to say is that you are calling to ask for money. The charity doesn’t have a chance to craft its message, and that will have a chilling effect on the calls.”

Robert A. Johnson, chief executive officer of Special Olympics Massachusetts, says charities need to know more about the rules before they can respond appropriately. For example, he says, the requirement that solicitors state up front the name and mailing address of the charity they are raising money for would be manageable if stating just the city and state were sufficient. But, he says, “it would be a different story if you have to begin the call with the street address, post office box, city, state, and ZIP code. That would be awkward.”

The Federal Trade Commission is now working on writing regulations to answer those kinds of questions about the new law, says Eileen Harrington, associate director of the FTC division that oversees the telemarketing rules.

The text of the law, which was passed as HR 3162, is available at http://thomas.loc.gov