Almost a year ago, on October 30, 2015, the FTC conducted a workshop on lead generation entitled to “Follow the Lead.” We published a three-part series on the workshop highlighting the key takeaways. On September 15, 2016, the FTC published its own staff paper discussing the workshop and providing its own analysis. The paper appears intended to serve as a warning to lead buyers and sellers about FTC expectations. Indeed, the staff states that the workshop and paper will “Inform our ongoing law enforcement work.” The paper is also likely to inform the CFPB’s ongoing supervisory and enforcement activities.
While the staff paper acknowledges some of the many positive aspects of lead generation, it focuses on what regulators are likely to view as the negatives:
- Complexity and Lack of Transparency: The FTC staff recognized that the online lead generation process is complex and often not transparent to consumers. They suggest that consumers may not understand the process, specifically:
- That their information may be going to a lead generator not a lender,
- That their information can be sold multiple times leading to multiple offers from lenders and marketers,
- That the offer they receive may be coming from the company that bid the most to get their information, and
- That lenders who buy their information may supplement it with additional information about the consumer obtained from other sources.The staff stated that all of these issues should be prominently disclosed to consumers.
The staff stated that all of these issues should be prominently disclosed to consumers.
- Aggressive or Potentially Deceptive Marketing: The staff also called attention to lead generators who engage in blatantly misleading advertising. One example cited was a lead generator that disguised loan applications to look like job applications.
- Potential Abuse of Sensitive Consumer Information: The staff further highlighted that bad actors may purchase or obtain consumer information from lead generators and aggregators and use it to commit acts of fraud. In one recent FTC enforcement action the staff noted, a company was accused of purchasing consumer information and using it to debit funds from consumers’ accounts without authorization.
The staff issued stern warnings to lead buyers and sellers alike that neither will be permitted to benefit from this kind of misconduct and avoid liability.
Lead buyers are warned that “companies who choose to ignore warning signs [of the above misconduct] and look the other way may be at risk of violating the law themselves.” The staff acknowledged that many lead buyers are taking increasingly sophisticated steps to identify and reject leads potentially obtained through misleading advertising. For example, at least one company has developed an online tool that assigns unique identifiers to leads allowing them to be tracked throughout the lead generation ecosystem. Lead buyers can also carefully monitor and audit the sites of companies that they buy leads from. The staff’s warning makes clear that these and other steps are not options for lead buyers who wish to avoid violating the law.
To lead sellers, the staff warns that “ignoring warning signs that third parties are violating the law and pleading ignorance will not shield companies from FTC liability.” The staff explained that self-regulatory bodies such as the Better Business Bureau and the Online Lenders Alliance can help sellers in preventing fraud, if the bodies publish clear guidance and follow-it up with robust monitoring and enforcement. The staff also stated that lead sellers have an obligation to vet and monitor the companies they sell leads to. The staff paper indicates that FTC enforcement in this area will not let up. Thus, following industry best practices and the careful vetting and monitoring of lead buyers are essential for lead sellers to avoid liability.
As we’ve noted previously, we’re seeing an uptick in CFPB enforcement in this area even though the FTC seems to have taken primary responsibility for enforcement actions against lead generators. The FTC staff paper will likely inform the CFPB’s own expectations in its increasingly common enforcement activity in the lead generation ecosystem.