WASHINGTON (Legal Newsline) – When set up properly, a consumer shouldn't notice it was a lead generator that connected them with a professional or service
"Consumers don't really need to know about the mechanics of lead generation," Theodore "Teddy" Flo, an associate with Ballard Spahr and contributor to CFPB Monitor, told Legal Newsline. "In general, when consumers search for products and services online, the results that they see are generated by algorithms and processes that are opaque to them. Lead generation is no different in that regard."
However, the U.S. Federal Trade Commission (FTC) takes an interest in letting consumers know about lead generation, Flo said.
"The FTC argues that disclosure is critical because consumers may not share certain information if they knew about the algorithms and processes," he said. "But industry insiders would tell you that consumers don't change their behavior even when disclosures are present on the webpages."
The FTC and CFPB operate under a memorandum of understanding to prevent duplication of effort while enforcing consumer rights, particularly in the financial industry. The CFPB was established by the Consumer Financial Protection Act of 2010 as an independent agency within the Federal Reserve's Board of Governors. The CFPB is set up to ensure that consumers are treated fairly by banks, lenders and other financial institutions.
On Oct. 30, 2015, the FTC conducted a workshop on lead generation, "Follow the Lead," which prompted the CFPB Monitor to published a three-part series about the highlights of that workshop. Last month, the FTC issued a staff paper that provided its own analysis and what the FTC expects from lead buyers and sellers.
The FTC is taking a hard look at lead generation, Flo said, referring to the FTC's May 2014 paper, "Data Brokers: A Call for Transparency and Accountability," which provides a detailed history about the FTC's role in this matter.
"The FTC has been looking at lead generators and data brokers for a long time, since the mid-1990s at least," Flo said. "The staff paper we [at CFPB Monitor] blogged about is just their most recent guidance."
Lead generators should be wary, Flo said.
"The CFPB has already sued a lead generator for alleged violations of the Dodd-Frank Act," Flo said. "The act gave the CFPB jurisdiction over 'service providers' to banks, lenders and other companies that provide consumer financial products and services. Because many lead generators work with banks and lenders, the CFPB claims that they are 'service providers' and thus subject to the CFPB's enforcement authority."
The Dodd-Frank Wall Street Reform and Consumer Protection Act is the Obama administration's financial reform legislation passed in 2010 in response to the financial crisis of 2008. The act established new government agencies, including the CFPB, to oversee various aspects of the financial industry.
In April, the CFPB went after Davit Gasparyan and Dmitry Fomichev, co-founders of an online lead aggregator service company, T3 Leads, that allegedly sold consumers’ loan applications without required safeguards, according to a CFPB press release. In separate complaints filed against Fomichev and Gasparyan in U.S. District Court for the Western Division of California's Central District, the CFPB alleged the lead aggregator bought and sold payday and installment loan applications without properly vetting buyers and sellers. T3Leads violated the Dodd-Frank Wall Street Reform and Consumer Protection Act, according to the CFPB press release.
"Buyers of leads from T3Leads include lenders tied to Indian tribes or based in foreign jurisdictions," the CFPB said in its press release. "These lenders often skirt state laws and deny the jurisdiction of U.S. courts. The CFPB alleges that T3Leads did not vet or monitor its lead buyers, exploited consumers’ lack of understanding of the risks, costs, and conditions of the loans applied for, and put consumer information at risk of being trafficked for illegal purposes."
The previous December, the CFPB filed a separate lawsuit against T3Leads and two other individuals.