FTC Scrutinizing Online Lead Generation Companies Posted on November 6, 2015 by Larry Bodine By Theodore Flo and Christopher J. Willis of Ballard Spahr LLP. Reprinted from JD Supra. Online lead generation is an area receiving increased regulatory scrutiny by the FTC and other regulators, including the Consumer Finance Protection Bureau.The FTC presented a workshop on October 30 on lead generation entitled Follow the Lead. This article highlights key issues in the industry and likely targets for CFPB and FTC enforcement activity. In this first entry, we provide a high-level overview of online lead generation’s five-stage process. Stage One: A Consumer “Raises Her Hand” In Stage One, a consumer takes some concrete action online expressing interest in a product or service. Often, this consumer interest is first reflected in an online search. Various players in the online advertising market work to optimize what consumers see when they enter particular search terms. Upon viewing the search results and targeted advertisements that appear alongside or embedded within the search results, a consumer then clicks, allowing anyone with access to the click data to get a better sense of what the consumer is interested in. The consumer’s expression of interest, by itself, is not enough to generate a marketable lead, however. The interest data must be combined with a way of contacting the consumer. Stage Two: Converting Interest into a Lead Skeptics view lead generation as inherently deceptive. They argue that the information that consumers receive from the lead purchasers is not an accurate reflection of the consumers’ buying choices. There are several ways that this may occur. For example, after clicking an online advertisement, a consumer may be redirected to an affiliate website containing a form to fill out. An advertisement may also allow a consumer to “click to call” a live salesperson. Online leads may also be created by aggregating data about consumer behavior in different online spheres. For instance, a consumer may visit a shopping website and search for socks. A third party may purchase the click data, incorporate personal contact information obtained from another source such as an online retailer that can link the consumer’s IP address to contact information, and create a lead that can be followed-up on by a specialty sock retailer. Each of these different aspects of lead creation is often handled by a different company that specializes in hosting web forms, managing “click to call” phone centers, or aggregating data, for example. Once these entities have created the lead, they work to sell or otherwise monetize it to earn a profit, often through resellers. Stage Three: Lead Resellers Package and Auction Leads In Stage Three, lead resellers connect lead creators with lead purchasers. Lead resellers maintain networks of lead creators whose leads they buy at prearranged prices. Lead resellers also maintain networks of companies interested in purchasing leads with certain characteristics. When leads come in from the creators, the resellers filter them and present lead purchasers with leads matching their specifications. Stage Four: Selling the Lead or Lead Data to a Purchaser In Stage Four, purchasers buy the leads from resellers, often through a reverse auction process referred to as a “ping tree.” In the reverse auction, various purchasers set prices that they are willing to pay for leads. The reseller then presents leads matching the purchasers’ specifications to the list of purchasers with the high bidder being given the first opportunity to buy the lead and so on until the lead is sold or the buyer list has been exhausted. After a lead is purchased, lead creators, resellers, and even purchasers may sell the lead or some data from the lead to other purchasers through a practice known as “re-marketing.” Critics of this practice say that it causes consumers to be bombarded by “unwanted” advertisements. Proponents argue that it gives consumers more choices and information which helps them make better decisions. Stage Five: The Lead Purchaser Reaches Out to the Consumer Stages One though Four often happen within seconds of a consumer expressing interest in the product or service. In Stage Five, the purchaser reaches out to the consumer in an attempt to close the deal. Lead purchasers do so in several ways. Some simply call or email the consumer. Others present the consumers with a series of targeted offers or buying choices through a website or “landing page.” Potential Problems Participants in the FTC workshop raised several consumer protection issues with this process. Some view the process as inherently deceptive. They argue that the information that consumers receive from the lead purchasers is not an accurate reflection of the consumers’ buying choices because the information pertains only to a limited subset of products or services offered by the lead purchaser. Of course, by this standard, any advertisement would fail, given that none of them present consumers with the full range of choices on the products or services that could potentially fulfill the consumers’ needs. Rather, most advertisers market their own products exclusively. Other participants raised questions about the role consumer disclosures should play in lead generation. Some said that disclosures should be made more robust and prominent. Others argued that too many disclosures cause information overload. Still others said that disclosures don’t matter because consumers don’t read them. There does not appear to be any consensus on this issue. More fundamentally, if a balance needs to be struck on any of these issues, who should decide how that happens? Currently, the lead generation industry is largely unregulated by the government, except through a handful of federal and state laws, highlighted a few years ago in a GAO report, and a patchwork of federal and state agencies. Right now, many lead generators submit to industry regulation through membership in the Online Lenders Alliance and its “best practices” or other organizations such as the Better Business Bureau. We know that the CFPB is stepping in to this area and will doubtless take a leading role in defining whether certain conduct is deceptive, the proper role of disclosures, and how the industry will be regulated going forward.