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Risk and compliance challenges in the swift moving lead-generation market

Risk and compliance challenges in the swift moving lead-generation market

Recently, Andrew Smith, Director of the FTC’s Bureau of Consumer Protection stated that one of its priorities would be to “combat bad practices in the lead generation market.” 33 Antitrust ABA 75, 76 (Spring 2019). Smith suggested the FTC was concerned about the entire ecosystem’s bad practices. He echoed his remarks during Comply 2019, an industry conference of compliance professionals. 

He 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. Comply 2019.  In addition, the CFPB, which also addresses improper lead generation practices impacting consumer financial services, settled a lawsuit with a lead generator for bad and illegal practices. In that suit, the defendants were required to pay a stiff penalty and faced corporate and personal industry bans. CFPB v. D&D Marketing d/b/a T3 Leads, (March 28, 2019).

As Smith signaled, the digital age is transforming not
only how consumers purchase financial goods and services; but also, the methods
companies use to market their services and products. 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. It sparks inherent risk for all
parties—including personal prohibition from industry markets as demonstrated in
the California case.  For market players,
it is important to understand the issues and their impact. 

While digital marketing is attractive because it 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’s (IAB) 2018 saw the highest expenditures on digital/internet
advertising: $107,487,000,000, a 21.8% increase from 2017.

In financial services, “lead generation” is the process of identifying
and screening consumers who may be interested in obtaining a financial service
or product. These product markets include payday lending, credit cards,
automobile loans, student loans, debt relief, and mortgage lending.

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 (for mortgage rates, for example), or
search engine results (clicking). Some lead generators simply 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
(loan) 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 are 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 very little or no regulation. The manner in which lead generators
operate (the amount they are willing to pay per click for example), may incentivize
them to continue to sell leads to the part of the market where illegal behavior
is rampant. For example, some consumers believe that they are applying directly
for a loan and provide very confidential personal identification and financial
data such as Social Security numbers and bank account information. Regulators have
enforced against bad actors who 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 Gramm Leach Bliley, financial
institutions must disclose how the consumers’ personal data is shared. Is the
company that is 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 non-compliance 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. Is the lead generated within the law? For
example, the EU’s GDPR 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 (TCPA) waivers that subjects purchasers of the leads to risk.
Compliance is not only a challenge for the lead generator; but also, poses
considerations for lead 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 the limits
of its authority and certain rights the consumers have to provide information
or not to others, many do not. In some cases, the consumer may be under the
impression that he/she is providing information directly to the company
managing the website (they are applying for a loan directly on the website). For
the consumer, not knowing whom it is 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, industry should be monitoring itself.  Sound compliance practices and expertise can
help guide companies through the dynamic digital age.

The post Risk and compliance challenges in the swift moving lead-generation market appeared first on SC Media.

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