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Established Business Relationship Exception

The "Junk Fax Prevention Act of 2005" ("Act") has permanently inserted the "established business relationship" ("EBR") exception into the federal laws governing facsimile communications. The law became effective July 9, 2005, when President Bush signed the bill. Under the new law, a fax can be sent to anyone with whom the sender has an EBR, so long as the sender received the fax number voluntarily or had received the fax number prior to the enactment of the Act. Click here to read a copy of the new law.

NAR and other business groups supported this legislation, as this pro-business legislation avoids burdening businesses with the requirement of gathering consents for faxes sent to their clients or those who requested faxed information. In order to comply with the Act's requirements, members, brokerages and associations should immediately document all fax numbers in their possession for those individuals, clients, members, firms and/or MLS participants with whom they had an EBR at the time of the Act's effective date. The law also gives the FCC the authority to completely exempt nonprofit trade associations from the Act's requirements with respect to an association's communications with its members, but to exercise that authority, the FCC must adopt a rule specifically providing for that exception.

I. Background

The Federal Communications Commission ("FCC"), under the authority given it by Congress in the Telephone Consumer Protection Act of 1991 ("TCPA"), adopted rules governing fax transmissions in 1992. The TCPA contains a specific prohibition against sending unsolicited advertisements to a telephone facsimile machine. The TCPA allows the sending of faxes containing advertisements to individuals who have given their express consent to receive the fax.

The TCPA defines an "unsolicited advertisement" as "any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person's prior express invitation or permission." The penalties for violating the TCPA are $500/fax, with treble damages for willful violations. Consumers have a private right of action under the law, so the law can be enforced by consumers, state attorneys general, or the FCC. Click here to learn more about how to report TCPA violations.

In 1992, the FCC established rules pursuant to the TCPA. These rules require all messages sent via facsimile machines clearly contain the date and time that the message is sent as well as the identification of the business entity or individual sending the message and the telephone number of the machine sending the message or of the business entity or individual sending the message. This information must be contained in a margin either at the top or the bottom of each page transmitted or on the first page of the transmission. Click here to learn more about the rules, which are still in effect and unchanged by the Act except as noted in this article. Following the issuing of the rules, an FCC order clarified that the rules apply to the sending of faxes to personal computers equipped with, or attached to, modems and to computerized fax servers.

Based on the language in the TCPA, the FCC concluded in their 1992 rulemaking that an EBR provides evidence of the required express permission to send an unsolicited fax. The FCC also interpreted “express permission” to allow for oral consent from the fax recipient.

In 2003, the FCC reversed its prior policy position, and changed its rules to state that a facsimile advertisement is considered "unsolicited" unless the sender had obtained express written permission from the intended fax recipient which clearly indicates the recipient's permission to receive the fax and also contains the fax number where the faxes will be sent as well as the recipient’s signature. The effective date of these new rules was postponed by the FCC on three occasions due to an outcry from the business community, and this new legislation means that the proposed rules will never take effect.

II. New Requirements for Sending Unsolicited Advertising

Faxes

Under the revised law, there are three requirements that apply to sending unsolicited advertising faxes:

(1) The sender must have an "established business relationship" with the recipient;
(2) The sender must have obtained the customer's fax number through methods described in the legislation; and
(3) The sender must provide an opt-out mechanism that meets the Act's requirements (set forth below)

A. EBR Requirement

The Act expressly adopts the EBR definition used in the FCC's rules until 2003 but expands the definition to cover businesses in addition to the residential customers. Under the earlier rules, an EBR had the following definition: "a prior or existing relationship formed by a voluntary two-way communication between a person or entity and a… subscriber with or without an exchange of consideration, on the basis of an inquiry, application, purchase or transaction by the… subscriber regarding products or services offered by such person or entity, which relationship has not been previously terminated by either party." Thus, a business has an EBR with anyone (i) with whom it has had a transaction, ­or, (ii) with someone who made an inquiry to the business.

i. EBR for associations

For a REALTOR® association, the association has an EBR with current members of the association, since the act of paying dues qualifies as a transaction for purposes of this exception. Thus, the association can freely send faxes to its members. Additionally, the association has an EBR with anyone who has purchased association services. This could include, for example, nonmembers who took a class at the association or made some other purchase from the association or former members of the association. Faxes could also be sent to individuals who have made inquiries about membership or services provided by the association, such as through a fax-on-demand system.

ii. EBR for brokerages

For brokerages, an EBR exists with consumers in the same way it does under the "do not call rules", except there are currently no time restrictions for an EBR in the Act. In general, the brokerage could send a fax to any consumer who makes an inquiry to the brokerage. For a more detailed analysis of situations a brokerage may encounter, click here to read the "do not call" Q&A. The Act will permit brokerages to send faxes to consumers in the same way it can call consumers with whom it has such an EBR, notwithstanding that their phone numbers appear on the "do not call" registry.

Brokerages will also need an EBR to send other brokerages faxes about listings. A brokerage would have an EBR with any brokerage with whom it has participated in a cooperative transaction. Additionally, the brokerage would be allowed to fax listings to any broker who has made an "inquiry" to the brokerage, and the inquiry need not be related to the particular listing that the brokerage would like to fax to the other broker. The brokerage could receive the "inquiry" in any communication form, whether such as by phone call or email. Of course, an email is preferable, since it would provide the brokerage with a written record of the inquiry. For brokerages who regularly exchange listing information through faxes, the brokerages may want to exchange written consents to receive each other's faxes (written consent is effective until revoked).


B. Obtaining Recipient's Fax Number

Next, the Act requires that the senders have obtained the recipient’s fax number in one of two specific ways. First, if the sender had an EBR with the recipient and also possessed the recipient’s fax number prior to the Act's effective date (July 9, 2005), the sender may send faxes to that number. In this scenario, it does not matter how the sender obtained the recipient’s fax number. Any sender which qualifies for this category should retain and document the fact that it had the recipient’s fax number on the Act's effective date. This would include membership applications for REALTOR® associations. For brokerages, the best document source would be any communications it has had with other firms, agents/brokers, or consumers where the fax number is disclosed, such as in a listing agreement or purchase contract.

However, if the sender has not obtained the recipient’s fax number prior to the Act's effective date or does not have an EBR with the recipient at the time of the Act's effective date, the sender will have to obtain the fax number from the recipient through (1) a "voluntary" communication of the fax number within the parties' EBR or (2) a number from a public source such as a directory, advertisement, or an Internet website.

The Act does not define a "voluntary" communication, but one of the following written communications provided to the entity sending the fax and containing a fax number would likely qualify as a voluntary communication: a business card; letterhead; invoices; and fax cover sheets. Of course, any communication where the receiving party voluntarily gives the sender their fax qualifies, whether it is given in an email or even in a conversation. However, it is advisable that the sender obtain a written record of the fax number, so as to protect itself from anyone who later claims to have not given the fax number to the sender. If the sender obtains the fax number from a public source, it should make a copy of the source if it is something like a directory or print out the page, if it is a website.

C. Opt-out Requirement

The Act requires that faxes containing unsolicited advertisements must contain an opt-out mechanism in order to allow the recipient the ability to opt-out of receiving future faxes from the business. The opt-out must also be included in faxes even where the sender has the recipient's written consent to send the fax. The opt-out must:

(1) be clear and conspicuous in its terms and on the first page of the fax (cover sheet if using one)
(2) state that the recipient has the right to opt out of future unsolicited advertisements, and that the sender's failure to comply within the shortest reasonable time (to be determined by the FCC, and until defined, brokerages and associations should quickly process opt-out requests to avoid lawsuits) is unlawful;
(3) include FCC language detailing an effective opt-out request (to be provided by the FCC); and
(4) provide a telephone and fax number where recipient can send opt request as well as a cost-free mechanism for opting out. The opt-out mechanism must be available 24 hours a day, 7 days a week.

The Act directs the FCC to create rules setting forth opt out request language and also to state what constitutes a "cost-free mechanism" for opting out. Right now, a cost-free mechanism that would comply is a toll free number. It is unclear whether an email address would qualify as a cost-free mechanism.

Possible opt-out language a business could use until the FCC provides its specific language:

“The recipient of this facsimile may request that the sender not send any future similar documents to a designated facsimile machine or machines. The sender’s failure to comply, within the shortest reasonable time, with an appropriate request is unlawful. To opt out of further facsimile advertisements from this sender, please [call or fax] [FILL-IN toll-free number] [email if desired] at any time on any day of the week.”

III. FCC Rules & Possible Future Rulemaking

In order to clarify the Act, the Act directed the FCC to adopt rules within 270 days of the Act's effective date. Some of the required rulemakings are specified in the Act. First, the FCC will adopt rules specifying the form of the opt-out language. Second, the FCC must establish the time in which a business has to honor an opt-out request. Finally, the FCC will clarify what constitutes a cost-free opt out mechanism.

The Act also gives the FCC the discretion to conduct two other rulemakings. First, the FCC can create a nonprofit exception to the Act's requirements. This exception would allow "professional or trade associations that are tax-exempt nonprofit organizations" like REALTOR® associations to send faxes to its members in furtherance of the association's exempt purpose without having to include the opt-out notice. This exception can only be created after the FCC conducts a rulemaking on this issue and determines through the rulemaking that the opt-out mechanism is not necessary to protect association members from unsolicited advertising faxes from the association.

Second, the Act gives the FCC the ability to shorten the EBR time period. In order to take such an action, the FCC must make the following findings: first, that the EBR exception has generated consumer complaints; second, that the EBR time periods are inconsistent with customer expectations; third, the costs and benefits to recipients associated with a more limited EBR time period; and finally, the effect of costs associated with a more limited time period on small businesses. The Act states that the FCC must wait at least three months from the Act's effective date before it may undertake such a rulemaking.

IV. Conclusion

New legislation has enshrined the "established business relationship" exception in federal facsimile laws. The Act's EBR exception allows businesses to send commercial faxes to its customers and business partners without having to gather express written consents. Under the new law, a fax can be sent to anyone with whom the sender has an EBR, so long as the received the fax number voluntarily or had received the fax number prior to the enactment of the Act. The FCC will conduct further rulemakings to clarify certain aspects of the new law as well as possibly expand the law to completely exempt associations' communications with their members.