The business case for robocalls

Tuesday, April 16, 2019 - 6:26pm

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Illustration by Christine Jegarl

“Congratulations, you won!” have become words to fear in the age of robocalls. Nearly every cell phone owner is familiar with the feeling of answering what looks like a local number, but hearing a cold, robotic voice awarding us a free Hawaiian cruise, or warning us of a vendetta from the IRS.

When taken for face value, robocalls seem to exist for the sole purpose of malicious irritation, but a closer look reveals that they have slithered their way underneath the innocuous umbrella of direct marketing, becoming the evil stepbrother of advertisement catalogs and emails.

While direct marketing is governed under three levels of regulation (federal, state and local), there is a thin line to cross before abusing the luxury of direct marketing — thin enough for businesses to have to consult attorneys just to engage in legitimate direct marketing practices, such as delivering sales pitches through mail, phone or email.

Robocalls have been a source of nuisance, deception and con artists for decades. In 1991, the federal government passed the Telephone Consumer Protection Act to regulate telemarketers and attempt to terminate fraudulent activity. It prohibited solicitation by autodialers, unsolicited fax marketing, calls before 8 a.m. and after 9 p.m., and calls to those who have indicated they would not like to be called again. The Federal Communications Commission does not award mercy to those who violate the TCPA. Last year, the FCC slapped a $120 million fine on Adrian Abramovich of Miami, who flooded consumers with 97 million phone calls promoting illegitimate travel deals using an autodialer. It was the largest fine to date.

But even more powerful than the FCC’s newly found authority to regulate telemarketers is the consumer empowerment that came with the legislation: TCPA also gave consumers a way to personally pursue a case against a telemarketer that they believe has violated the law. An individual can earn up to $500 per violation that they have experienced, and if caught by the FTC, telemarketers can be liable for $10,000 per violation. 

But being caught is a tough bet in the industry. Because small illegal operations either run on anonymity or are based overseas, tracking robocallers’ assets is one of the biggest pain points in trying to stop this fraudulent practice. Many times, operations are so small that, when fined, they are unable to even pay the full penalty. As of three weeks ago, the FCC announced that they have fined robocallers $208 million, but have only been able to collect $6,790.

With the TCPA now being the No. 1 lawsuit filed in the U.S., comedian John Oliver has a point: Hatred of robocalls may just be “the only thing everyone in America agrees on.” But the problem is only getting worse. According to Robocall Index, there are roughly 170 million robocalls made per day, and it continues on an incline. Mobile scam calls made up 3.7 percent of total calls in 2017, 29.2 percent in 2018, and that number is now projected to reach roughly 45 percent before the end of this year.

But robocalls are not solely used for deception: We rely on automated calls from our hospitals and dentists reminding us of appointments, pharmacies notifying us about medication refills, school districts announcing snow days and banks alerting us of fraud. And while federal law requires that companies cannot conduct robocalls without giving consent, most of us have opted into them without realizing it — in the lengthy terms of service box we habitually check before using a product or service.  

Nevertheless, the robocall ratio of necessary to unnecessary is remarkably lopsided. In the pursuit to combat robocalls and profit, cell phone providers (e.g. AT&T, Verizon Wireless) and third party apps (e.g. Nomorobo, Hiya) are charging monthly fees to help fend off robocallers. They detect repeating-digit numbers (i.e. 222-222-2222), numbers with more than 10 digits, and, the latest tactic, neighborhood spoofing: suspiciously similar phone numbers to those of our neighbors.

The annoyance of robocalls has expanded to our inboxes with the rise of email. In 2003, the federal government also cracked down on unsolicited emails by passing legislation called “Controlling the Assault of Non-Solicited Pornography and Marketing Act,” or CAN-SPAM. While the government was originally relaxed about email marketing due to its free receipt, easy discarding and legal physical mailbox spam, it began cracking down on misleading emails, demanding only truthful and straightforward content in order to prevent spam from turning to scam. That same year, robo regulation continued as the government established a national Do Not Call registry.

Despite more entities cracking down and more legislation being passed, the fact of the matter is that becoming a robocaller and getting away with it is fairly simple. Downloading software only requires internet access and a computer, and the cost is typically less than a penny per call.

And while scammers can see windfalls when consumers naively fork over their credit card numbers to purchase illegitimate services, they can also make incremental income just by calling phone numbers that provide caller ID. These IDs originate from databases that try to identify who is calling, and when a caller’s name is displayed, phone companies pay small fees to databases that store the names, and occasionally to the caller himself as well. These fees can sometimes even be enough to offset the cost of making the calls in the first place.

While we can appreciate the government’s endeavors to double down on this issue, there is another layer of complexity to consider: the honest victims who get caught in the fishnet.

Since the TCPA is what’s called a strict liability statute, one harmless mistake can result in a violation — no exceptions. And since 100,000 phone numbers are reassigned every day, it isn’t hard for well-intentioned companies to accidentally call the “wrong person,” or rather, the new owner of a subscribing phone number. If the new call recipient brings the call to court, it could cost the company.

Three weeks ago, Roger Meiners, a professor at University of Texas-Arlington, proposed a novel solution that quickly gained traction online: the “Penny for Sanity Tax” or a 1-cent tax on every call made. The five billion robocalls made this past year would cost $50 million — a notable government incentive to act. Because targeting individual robocallers is virtually impossible, the tax would apply to all calls to affect any caller in the U.S., robo or real. Because society is moving away from frequent calling, the tax would hardly affect common man’s wallet. The average adult makes six calls a day, meaning a mere $1.80 a month. Once you get past the idea of yet another tax, this could be our silver bullet.

While the FCC works day and night to combat this incessant issue, it came to a head last week when federal investigators unearthed Operation Brace Yourself, one of the biggest health care scams in U.S. history, amounting to $1.2 billion. The Department of Justice has charged 24 people from New Jersey to California after telemarketers in the Philippines and Latin America advertised “free” orthopedic braces to those newly eligible for Medicare in the U.S. Doctors deliberately wrote prescriptions for braces that patients never asked for, and sold the prescriptions to brace manufacturers who then billed Medicare anywhere $500 to $900 for each brace. After processing, doctors were given kickbacks of roughly $300 per brace. Needless to say, it did not pay off.

Whether it’s through the Penny for Sanity Tax or another round of legislation, robocalls may remain the FCC’s top priority for a while.

You can protect yourself from robocalls by signing up your mobile phone on the Do Not Call Registry at www.donotcall.gov, and refraining from answering any phone number that mimics the first 4-6 digits of your phone number.