Understanding the Customer Exemption Under Texas SB 140

​With Texas SB 140 now in effect, many companies are grappling with a critical question: Do the law's strict registration requirements apply to businesses that only contact existing customers or individuals who have provided prior consent? While SB 140 does include a customer exemption, understanding its scope and navigating its ambiguities presents significant compliance challenges.

The Customer Exemption in SB 140: A Closer Look

Texas Business and Commerce Code Section 302.058(2) provides relief for certain businesses by exempting them from Chapter 302's registration requirements. To qualify, a company must meet two conditions:

1. Solicit business exclusively from former or current customers, and
2. Operate under the same business name for at least two years.

Companies that qualify can avoid the most burdensome requirements imposed by SB 140, including:

1. Registration with the Texas Secretary of State
2. $200 annual registration fee
3. $10,000 security deposit or bond
4. Quarterly reporting and annual renewals

The Central Challenge: Defining "Customer"

Here's where SB 140 makes things complicated. Texas law doesn't define "customer" for purposes of this exemption, creating a legal gray area that could prove costly for businesses that guess wrong.

Legal experts are divided on interpretation:

Broader interpretation: Some attorneys believe Texas courts might adopt an expansive view of "customer" similar to the "established business relationship" concept. Under this interpretation, anyone who has engaged in voluntary two-way communication with a business could qualify as a customer, even without making a purchase.

Restrictive interpretation: Other legal analysts argue that since the statute separately defines "purchaser" more broadly, the legislature's choice to use "customer" suggests a narrower meaning requiring an actual transaction or purchase.

Gray Areas That Create Risk Under SB 140

This definitional uncertainty is particularly problematic for companies dealing with individuals who have:

1. Subscribed to marketing communications without purchasing
2. Created accounts but never completed transactions
3. Provided contact information through one-way interactions (like downloading a whitepaper)
4. Made purchases in the distant past without recent activity

High Stakes for Getting It Wrong

The financial consequences of misapplying this exemption are severe. SB 140 violations can result in:

1. Up to $5,000 per violation
2. Private lawsuits under the Texas Deceptive Trade Practices Act
3. Treble damages and attorney's fees
4. No caps on recoveries from serial litigation
5. Additional statutory damages ranging from $500 to $5,000 per violation

Navigating the Uncertainty: Practical Recommendations

Given the unsettled legal landscape and significant financial exposure, businesses should take a cautious approach with SB 140:

1. Seek Legal Guidance. Consult with attorneys experienced in Texas telemarketing law who can assess your specific situation.

2. Take a Risk-Based Approach. Evaluate whether your customer relationships clearly fall within any reasonable interpretation of the exemption.

3. When in Doubt, Register. If there's uncertainty about whether individuals qualify as "customers," registration may be the safer path.

4. Document Everything. Maintain comprehensive records of customer interactions, consent, and the nature of your business relationships.

The Bottom Line

While the customer exemption in SB 140 offers potential relief for businesses with existing customer relationships, its practical application remains legally uncertain. Until Texas courts provide clearer guidance on what constitutes a "customer," companies must carefully weigh the risks of relying on this exemption against the costs of compliance.

The safest approach may be to err on the side of caution—because when penalties can reach $5,000 per violation, the cost of being wrong far exceeds the burden of registration.