Recently, Andrew Smith, director of the Federal Trade Commission's Bureau of Consumer Protection, stated in the American Bar Association's Antitrust magazine that one of its priorities would be to "combat bad practices in the lead generation market." Smith suggested the FTC was concerned about the entire ecosystem's bad practices and went further to indicate that the FTC would address the entire lead generation market—not just the lead generators; but also, the purchasers and end users of the leads. Additionally, the Consumer Financial Protection Bureau settled a lawsuit with a lead generator for bad and illegal practices. In that suit, CFPB v. D&D Marketing, the defendants were required to pay a stiff penalty and faced corporate and personal industry bans.

The digital age is transforming not only how consumers purchase financial goods and services, but the methods companies use to market their services and products. These include payday lending, credit cards, automobile loans, student loans, debt relief and mortgage lending. The dramatic shift from traditional media to the internet has several upsides for companies seeking to identify potential customers and convert interest into sales leads. It decreases expenses but also accelerates the speed to almost real time in identifying, targeting and converting potential customers to paid sales. This market speed causes significant competition for leads and, often, competition can mean cutting corners on compliance. For market players, it is important to understand the issues and their impact.

While digital marketing is quicker and less expensive than other media, its ability to attract customers' attention is also key. Digital marketing can be more engaging with graphics, links, and back-end analytics that use sophisticated algorithms to serve up more things to buy. These tactics show no sign of stopping and with mobile devices, digital methods are a marketer's key investment. According to the Interactive Advertising Bureau, 2018 saw the highest expenditures on digital/internet advertising: more than $107.4 billion, a 21.8% increase from 2017.

It is designed to take interested consumers, refine the list for targeting for particular products and distribute potential consumers and their information to companies. Those companies buy leads and convert them into business opportunities by direct consumer interaction. Potential customers are identified through various means such as shopping websites, comparison websites, or search engine results. Some lead generators sell the collected information to lead aggregators, who run analytic models to determine the best targets for potential sales to companies. They will examine pertinent data indicators collected from consumers such as an application for a transaction to create sales target profiles.

While potential compliance risks for companies are inherent in the process, the impact on consumers is equally risky. They face fraudulent lenders, privacy challenges and little transparency. For those not skilled in digital interaction, the risks are higher and the potential for exploitation is even greater.

Fraudulent lending operations thrive in this digital age. Although some states require licenses for lead generators to operate, they are otherwise subject to little or no regulation. The manner in which lead generators operate may incentivize them to continue to sell leads to the part of the market where illegal behavior is rampant. For example, some consumers believe they are applying directly for a loan and provide confidential identification and financial data such as Social Security numbers and bank account information. Regulators have enforced against bad actors that take information, open accounts in consumer's names, withdraw and even liquidate money from their accounts. Consumers must be vigilant and companies must know the challenges.

Privacy Concerns

Under the Gramm-Leach-Bliley Act, financial institutions must disclose how the consumers' personal data is shared. Is the company buying the leads taking all necessary steps to safeguard the information, as required, if the financial service or product includes an extension of credit? If not, there is a risk of noncompliance by the purchaser of the leads. Information that contains consumers' personal data may be subject to various state privacy laws such as the California Consumer Privacy Act and other states that have similar statutes. The EU's General Data Protection Regulation sets out rules for businesses so that personal data are collected and protected properly. The information sold may be incomplete or inaccurate, and could include invalid waivers such as Telephone Consumer Protection Act waivers that subject purchasers of the leads to risk. Compliance poses challenges for both the lead generators and purchasers and should include steps demonstrating due diligence, proper monitoring of the lead generator's business model, and appropriate disclosures for the consumers.

Transparency Challenges

While some comparison shopping websites have good models for disclosure, including informing the consumer of the limits of its authority and certain rights the consumers have to not provide information to others, many do not. In some cases, the consumer may be under the impression that they are providing information directly to the company managing the website. For the consumer, not knowing who they are doing business with and what may happen to personal information remains a significant risk. Consumers lacking digital skills may be easy targets.

While the CFPB, the FTC and state regulators continue to enforce against bad practices in this market, the industry should be monitoring itself. Sound compliance practices and expertise can help guide companies through the dynamic digital age.

Anthony Alexis is a partner in Goodwin Procter's financial industry practice and serves as the head of the firm's consumer financial services enforcement practice, focusing on consumer financial services and government and regulatory investigations.