On January 2, 2024, Response Tree LLC and its president, Derek Thomas Doherty (collectively "Response Tree"), settled claims that they had violated Federal Trade Commission ("FTC") consent regulations by, among other things, illegally generating telemarketing leads. Entered on the same day, the Central District of California Complaint, filed by the United States Department of Justice ("DOJ") on behalf of the FTC, alleged serious violations of various telemarketing statutes, including the Telemarketing Sales Rule ("TSR"). As our readers are aware, the TSR prohibits telemarketing businesses from engaging in certain abusive practices that invade upon consumer rights to privacy. Under the Federal Trade Commission Act ("FTC Act"), the DOJ has authority to file suit against entities alleged to have violated TSR telemarketing consent rules.

One takeaway from the Response Tree proceeding is that the FTC is actively continuing its crackdown on businesses engaged in what it terms "consent farming." According to the Complaint, consumers visiting websites operated by Response Tree consented to receive price quotes for particular services, such as home refinancing. Unbeknownst to consumers that visited its websites, Response Tree also (or, in some instances, instead) sold their lead information to companies that promote products and services completely unrelated to the original consumer inquiry. Response Tree now finds itself banned from any further lead generation activities as a result of its settlement agreement with the government.

How Did Response Tree Allegedly Violate TSR Telemarketing Consent Rules

The FTC is authorized by Congress to promulgate telemarketing regulations, including those governing consumer consent, under 15 U.S.C. § 6102(a)(3)(A). Pursuant to the TSR, before any prerecorded message is delivered to a consumer, "the seller [must have] obtained from the recipient of the call an express agreement, in writing, that: . . . (iii) [e]vidences the willingness of the recipient of the call to receive calls that deliver prerecorded messages by or on behalf of a specific seller."

The TSR further provides that outbound telephone calls may be placed to telephone numbers on the National Do Not Call Registry when it can be demonstrated that "the seller has obtained the express agreement, in writing, of such a person to place calls to that person." The Complaint alleges that Response Tree's lead generation practices fell exceedingly short of FTC telemarketing consent standards as required by the TSR.

Although the Complaint only focused on five websites, the FTC believes that, dating back to 2019, Response Tree has operated over 50 "consent farming" websites. The Complaint alleges that Response Tree furthered its consent farming activities using deceptive practices, known as "dark patterns." As our readers are aware, a "dark pattern" is a form of user interface designed to manipulate or trick consumers into taking actions that may be against their interest or contrary to their intent. On one particular website, the FTC investigation revealed that Response Tree:

  • Obtained consumers' purported consent through subterfuge, disguising consumers' consent to be contacted by numerous sellers as a request for home mortgage financing quotes;
  • Concealed key disclosures by presenting them in small text that was barely legible to the naked eye and hid these disclosures behind a hyperlink; and
  • Used disclosures that contain confusing and contradictory language.

At its peak, the Complaint alleges, Response Tree offered an average of 10,000 leads for sale to lead buyer clients every day.

How does the Response Tree Settlement Affect your Business?

This proceeding serves as a reminder that businesses engaged in the lead generation business must carefully follow the rapidly-changing rules and regulations that apply to the telemarketing space or end up on the receiving end of a regulatory investigation. These investigations do not often end well; per the settlement agreement with the FTC, Response Tree:

  • Can no longer initiate or help initiate telemarketing robocalls;
  • Is banned from calling, or assisting any other entity in calling, phone numbers on the DNC Registry;
  • Can no longer sell, transfer, or disclose consumer information in connection with lead generation activities; and
  • Must pay a $7 million judgment (which is suspended due to its inability to pay).

This is only the latest in a long list of FTC efforts to shut down what it terms "consent farms." Taking into account the FCC's recent overhaul to Telephone Consumer Protection Act ("TCPA") consent rules, businesses that sell consumer lead data in bulk need to seriously reconsider their legacy lead generation practices. As can be seen from the Response Tree settlement terms, the penalties can be crippling.

Whether your company is in the business of acquiring and selling lead information or placing telemarketing calls, the methodology by which you obtain consumer consent needs to be overhauled immediately. In light of recent governmental enforcement action, businesses should retain telemarketing law attorneys that are experienced in advising companies on compliance with state and federal telemarketing regulations, including the TSR and TCPA.

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