On October 19, the FTC announced the agenda for its upcoming workshop entitled, “Follow the Lead: An FTC Workshop About Online Lead Generation.” As consumers search the internet for goods and services, they are often times asked to provide sensitive personal and financial information that a lead generator may then subsequently transfer to third-party marketing companies. The workshop will examine consumer protection issues raised as a result of the practices of the lead generation industry, and is scheduled to host the following panels in Washington, DC on October 30: (i) Introduction to Lead Generation Marketplace and Mechanics; (ii) Case Study on Lead Generation in Lending; (iii) Case Study on Lead Generation in Education; (iv) Overview of Consumer Protection Concerns and the Legal Landscape; and (v) Looking Ahead – Protecting and Educating Consumers.
On October 30, the FTC hosted a workshop on online lead generation titled “Follow the Lead.” The workshop focused on lead generation in the mortgage and education lending space and consisted of a number of discussion panels composed of industry representatives, consumer advocates, and FTC regulators.
The first panel was primarily an overview of how web-based advertising is executed and how leads are generated using a variety of methods. Also discussed were the data analytics used to validate and assign value to the data collected. It was also noted that large media companies, such as Google and Facebook, have enacted policies restricting advertisements by participants in certain industries.
The second and third panels focused on online lead generation policies and practices in consumer and education lending, respectively. Industry participants and consumer advocates discussed varying policy viewpoints with respect to the practice of buying and selling data of consumers viewing a particular type of website to participants in a different industry. For instance, lead generators gathering data from consumers searching for jobs and then selling that data to providers of educational services. The panelists generally agreed that this practice was not inherently abusive, but could be harmful when implemented with intent to mislead. All generally agreed that guidance from the FTC and other government agencies would be useful to the extent that standards of conduct and transparency could be more clearly proscribed. Read more…
On April 7, Illinois Attorney General (AG) Lisa Madigan sued a payday loan lead generator to enforce a 2012 cease and desist order issued by the state’s Department of Financial and Professional Regulation. The regulator and the AG assert that the state’s Payday Loan Reform Act (PLRA), which broadly defines “lender” to include “any person or entity . . . that . . . arranges a payday loan for a third party, or acts as an agent for a third party in making a payday loan, regardless of whether approval, acceptance, or ratification by the third party is necessary to create a legal obligation for the third party,” required the lead generator to obtain a license before operating in Illinois. The AG claims that the lead generator violated the state’s Consumer Fraud and Deceptive Business Practices Act by offering and arranging payday loans in knowing violation of the PLRA’s licensing and other requirements. The suit also alleges that the lead generator knowingly matched Illinois consumers with unlicensed members of the generator’s payday lender network. The AG is seeking a permanent injunction and a $50,000 civil penalty. On the same day, the AG also announced it filed suits against four online payday lenders for failing to obtain a state license, making payday loans with interest rates exceeding state usury caps, and otherwise violating state payday loan limitations. Those suits ask the court to permanently enjoin the lenders from operating in Illinois and declare all existing payday loan contracts entered into by those lenders null and void, with full restitution to borrowers.
On December 3, New York Governor Andrew Cuomo announced that the state Department of Financial Services (DFS) sent subpoenas to 16 online “lead generation” companies as part of its expanding investigation into online payday lending. The DFS alleges the target companies are engaged in deceptive or misleading marketing of illegal, online payday loans in New York, and claims lead generation companies offer access to quick cash to encourage consumers to provide sensitive personal information and then sell that information to, among others, payday lenders operating unlawfully in New York. The DFS publicly kicked off an investigation of online payday lending earlier this year when it sent letters to 35 online lenders, including lenders affiliated with Native American Tribes, demanding that they cease and desist offering allegedly illegal payday loans to New York borrowers. Under New York law, it is civil usury for a company to make a loan or forbearance under $250,000 with an interest rate exceeding 16% per year, and a criminal violation to make a loan with an interest rate exceeding 25% per year. The DFS cites as part of the basis for its expanded investigation consumer complaints about false and misleading advertising (including celebrity endorsements), harassing phone calls, suspicious solicitations, privacy breaches, and other issues.
Florida District Court Orders Disgorgement of Profits from Unfair, Deceptive Online Payday Loan Referral Practices
On July 18, the U.S. District Court for the Middle District of Florida held that an online payday loan referral business engaged in unfair and deceptive billing practices and failed to provide adequate disclosures to its customers. FTC v. Direct Benefits Group, LLC, No. 11-1186, 2013 WL 3771322 (M.D. Fla. Jul. 18, 2013). The FTC alleged that the defendants violated the FTC Act by obtaining consumers’ bank account information through payday loan referral websites and debiting their accounts without their consent. The FTC also alleged that the defendants failed to adequately disclose that, in addition to using consumers’ financial information for a payday loan application, they would use it to charge them for enrollments in unrelated programs and services. During a bench trial, the parties presented evidence and arguments regarding the content and operation of the websites and whether consumers could enroll in the referral programs without taking affirmative steps to do so. The court agreed with the FTC’s claims that the defendants’ practices were deceptive and held that the “pop-up box” used to enroll consumers in the programs at issue was misleading. The court explained that the defendants’ website and the online payday loan application form created the overall impression that they were intended for applying for payday loans and that the bank account information that applicants were asked to enter would be used for deposit of the payday loan—not so that the account could or would be debited for the purchase of an unrelated product or service. Further, the court held that the defendants’ disclosures were not clear and conspicuous under the principles included in the FTC’s “.com disclosures guidance.” The court also held that the FTC established that the billing practices were unfair, and ordered the defendants to disgorge over $9.5 million and permanently cease the practices at issue.
On November 7, the U.S. District Court for the Middle District of Florida held that numerous factual issues prevented the court from granting summary judgment on the FTC’s claims that an online payday loan referral business engaged in unfair and deceptive billing practices and failed to provide adequate disclosures. FTC v. Direct Benefits Group, LLC, No 11-1186, 2012 WL 5430989 (M.D. Fla. Nov. 7, 2012). The FTC alleges that the defendants violated the FTC Act by obtaining consumers’ bank account information through payday loan referral websites and debiting their accounts without their consent. The FTC also alleges that the defendants failed to adequately disclose that, in addition to using consumers’ financial information for a payday loan application, they would use it to charge them for enrollments in unrelated programs and services. Although it acknowledged that the FTC had presented substantial evidence regarding consumer complaints about the defendants’ activities, the court held that because the defendants maintain that no consumer could be enrolled in the programs without at least clicking an “okay” button on the defendants’ websites, the FTC was not entitled to summary judgment. A bench trial is scheduled for November 27, 2012, during which the parties will present additional evidence and arguments regarding the content and operation of the websites and whether consumers could enroll in the referral programs without taking affirmative steps to do so.
On July 30, Arizona Attorney General Tom Horne announced an agreement with an Internet lead generator that requires the firm to halt operations through which it solicited information on behalf of payday lenders. Under state law, lenders have been prohibited from offering payday loans to Arizona consumers since July 2010. The Attorney General alleged that the settling company operated a website that collected Arizona consumers’ personal information and then sold that information to payday lenders who subsequently offered illegal payday loans to those consumers. While the agreement requires that the lead generator cease collecting and transmitting consumer information in connection with any type of consumer loan, it does not include any monetary payment beyond attorney fees.