Noncommercial Stations Beware: When ‘Underwriting’ Spots Turn into Advertising, a Big Penalty Can Follow

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Many noncommercial educational (NCE) stations - and their lawyers - were caught by surprise last week when the FCC issued a $115,000 civil penalty against an NCE licensee. The Cesar Chavez Foundation (CCF) was hit for running underwriting spots promoting for-profit entities. CCF agreed to the monetary penalty as part of an FCC approved consent decree released on Feb. 1.

In the past, FCC civil penalties and forfeitures for violation of underwriting restrictions have been more modest, typically $12,500 or less. The size of this penalty may indicate an interest by Chairman Pai's new Enforcement Bureau Chief, Rosemary Harold, to get tougher about NCE underwriting practices. But it also might indicate a loss of patience with CCF, since this is not the first, not the second, but at least the third time that CCF has been cross-wise with the FCC over underwriting copy. Specifically, in 2012 CCF was hit with a $12,500 forfeiture and then in 2016 it agreed to another $12,500 civil penalty as part of a consent decree deal.

The penalties in this latest CCF latest case include, in addition to the $115,000 assessment a one-year prohibition on broadcasting any underwriting announcements on behalf of for-profit entities. A death knell for many NCE stations - this is the first time we can recall such a restriction being imposed.

The practice of resolving cases through consent decrees, where the licensee agrees to certain sanctions in return for closure of an investigation, makes it difficult for other NCE stations and their lawyers to tell how egregious the offensive announcements were, because decrees typically don't quote the offending language. But In this case, the FCC accompanied the consent decree with a news release that provides a little more detail.

According to the FCC, the spots CCF aired ran afoul of the underwriting rules in various ways by:

• Drawing comparisons between an underwriter's products or services and those of its competitors and making a qualitative statement ("There are times that we fear going to see cars because we don't know who to trust. You can trust the Bill Luke car dealership");
• Including information on prices, savings, or value ("Additional holiday bonus savings on select models");
• Making calls to action ("Are you ready to buy a house? Want to know if you qualify?");
• Listing a "menu" of products or services ("Cell phones from companies such as Verizon Wireless, Cricket, T-Mobile, Virgin Mobile, Trac-Fone"); and
• Making the spots too long (here, between 30 and 60 seconds in duration).

Regarding this last point, while the FCC has not set a maximum length for underwriting spots, it has said, "the longer the announcement, the more likely it is to contain material that is inconsistent with their 'identification only' purpose."

As to the "menu" restriction, we don't recall seeing that policy being applied to a spot listing as few as five items, which is the number in the example included in the FCC's news release. Seven, yes; five, no.

Whether the CCF consent decree marks the beginning of enhanced enforcement of the FCC's underwriting restrictions or only an outlier involving a repeat offender remains to be seen. But in any case, going forward NCE stations should exercise particular care in reviewing underwriting copy. More and more, underwriters are pushing stations toward going over the line. Stations now have a concrete reason to push back against calls to action and qualitative or comparative claims. It could get them in trouble if they don't.