This post is the third in a series we’re writing on the FTC’s workshop on online lead generation entitled Follow the Lead. In our first post, we explored how online lead generation works. In our second, we covered the role that disclosures can and should play. Here, we will discuss the allegation the CFPB and certain consumer groups raise that the industry is “inherently deceptive.”
At the FTC workshop, certain panelists asserted that online lead generation in the financial services and education markets is inherently deceptive. Their theory was not entirely clear. But they seemed to suggest that the deception lies in the fact that the results that consumers get back after entering their data into the online forms are not necessarily the results that are “best” for them. For example, if a consumer were to fill out a form for an online loan, the lender that he or she would be matched with may not be the one with the lowest interest rate or best loan terms. Instead, consumers will be matched with the lender that was willing to pay the most for the opportunity to make the loan through the ping tree reverse auction process described in our first post on this topic. This, they claim, is inherently deceptive.
If that’s so, then all marketing is deceptive, especially in the online world, because all marketing works that way. Companies pay for access to consumers. If you run an internet search for “online loan” the first results on most search pages are for the companies that paid to be on the top. All of the banner advertisements we see when browsing the internet are put there by companies who have analyzed our online behavior, used algorithms to guess at what we may be interested in buying, and found someone to make us an offer. There’s no promise that the ad is for the product that is the cheapest, the “best” value, or that otherwise meets our needs.
The same is true of a television ad. When a product or service is advertised on television, no consumer believes that the mere fact of the advertisements means that the product or service is the best one available for their needs or budget. Consumers understand and expect that they have the power and the responsibility to evaluate a product or service for themselves. Doing so on the internet through comparison shopping is extremely easy.
Of course, that’s exactly what consumers do in the online lending space. Even after they enter information into one online form, they often enter their information into other forms and then compare the results. In addition to using lead generators, they can also interact with online lenders directly by clicking on any of the many search results that come up in searches for online loans. Even consumers who don’t comparison shop do so for reasons of their own. Perhaps they don’t want the trouble of entering their information into many different websites to find a lender that will accept them. Perhaps speed is important. We don’t know. But, given the competitiveness of the industry, and the thousands upon thousands of results that come up in searches, there is no argument that consumers cannot comparison shop.
In making arguments like the ones we are discussing, consumer advocates point out that not all lead generators operate under the “ping tree” model. Some operate more like popular travel websites, where they provide consumers with a list of lenders to choose from with key loan-level information prominently displayed so that consumers can comparison shop. Why, they argue, can’t other online lead generators use the same model?
There are three problems with this argument: The first is with the question itself. Shouldn’t the market decide what kinds of businesses work? If it were commercially feasible to operate a travel website of online loans, wouldn’t someone have done it? Second, there is a real answer to the consumer advocates’ question, namely, speed. Online loans, unlike mortgages, student loans, auto loans, etc., are made quickly. That is their prime advantage over other forms of borrowing. Lenders have limited capital to lend out, and borrowers want their loans quickly, often to pay for emergencies. By the time a borrower takes time to look at the lending terms and select a lender, the loan may no longer be available. One consumer advocate proposed that fast lending was inherently bad and that the government should slow the whole process down. Query whether she would say that, if she found herself in need of a loan quickly to cover an emergency expense. Third, even these travel websites of loans only display loans from lenders that pay to be listed. There may still be loans with better terms that are not displayed. Thus, the alternate model still does not overcome the primary objections of these consumer groups because they still may not be seeing the “best” deal available.
For all these reasons, there is no credible argument that online lead generation or the ping tree model is inherently deceptive. If they are inherently deceptive, then so is all online advertising, especially advertising that makes use of consumer data. As everyone freely admits, there have been and may still be bad actors in the online lead generation space, and these bad actors may have caused consumer harm. But, there is no argument that the model itself is to blame.
In our next post, we will explore the self-regulatory model as applied to online lead generation.