Restoring & Maintaining Trust › Files › Regulatory › Federal... · 2019-12-16 · Restoring & Maintaining Trust Page | 4 the call (or data) will be transferred to that advertiser

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Restoring & Maintaining Trust: Lead Generation Self-Regulation to Protect

Consumers and Preserve Competition

Prepared by

Michele A. Shuster, Esq. Joshua O. Stevens, Esq.

Adam T. Steele, Esq. 6525 W. Campus Oval, Suite 210

New Albany, Ohio 43054

September 4, 2019

Version 2.0

R e s t o r i n g & M a i n t a i n i n g T r u s t P a g e | 2

I. EXECUTIVE SUMMARY

For decades, American businesses both large and small have relied on lead generation

services to put them in contact with consumers seeking their products or services. This is even

more true in the internet era, where consumers typically choose to begin their search for products

and services online and expect to find online sites where they can compare brands.1

During that time, high-quality lead generators demonstrated they were a highly valuable

component of the advertising market.2 At the same time; however, bad actors manipulated the

business models employed by legitimate lead generators and created deceptive and fraudulent

schemes that violate consumer privacy rights and jeopardize the industry as a whole. These bad

actors operate in what Federal Trade Commission (“FTC”) Consumer Protection Bureau Director

Andrew Smith rightfully declared an “ecosystem of deceit” as he announced the FTC’s latest

regulatory plans to bring that behavior to an end.3

In exercising their regulatory authority, however, the FTC and other state and federal

regulators could unintentionally impact legitimate industry practices. To support the elimination

of bad actors, the lead generation industry could adopt self-regulatory principles. These would

include informed consumer consent, protection of consumer data, and accountability and

remediation. As in other industries, these principles could be enforced through a self-regulatory

program under the auspices of an industry body. Compliance could also be incentivized by

regulators through provision of a regulatory safe harbor or presumption of compliance for

participating businesses.4

1 For example, in travel, over 70% of consumers commence their search for flights from sites like Expedia.com, not branded sites such as United.com. Similar statistics apply in financial services (e.g., mortgages, credit cards), home services (solar panels, contractor searches) and other industry categories (also known as verticals). Consumer comparison websites are the largest segment of online lead generation. 2 “Follow the Lead” Workshop: Staff Perspective, FTC (Sept. 2016), 4 (“At the Workshop, industry representatives stated that third-party lead generators provide potential benefits to both consumers and competition. Lead generators may have special expertise that connects merchants and interested consumers quickly and cost-effectively […] Additionally, lead generators may benefit consumers by connecting them quickly with multiple merchants, and their associated offers, that consumers might not find as easily on their own.”). 3 FTC to Crack Down on Cos. That Buy Data from Scammers, Law360 (May 15, 2019), available at https://www.law360.com/articles/1160170/ftc-to-crack-down-on-cos-that-buy-data-from-scammers (last accessed May 29, 2019). 4 See, e.g., the National Funeral Directors Association (https://www.nfda.org/) and the BBB National Program’s Electronic Retail Self-Regulatory Program (https://bbbprograms.org/programs/ersp/).


II. BACKGROUND

a. Third-Party Lead Generation Structure

Lead generation (also known as “performance marketing”) often begins with a consumer-

facing website containing information about a product or service.5 Using the information gathered

from the website, the lead generator is capable of connecting the consumer to provider(s) of the

product or service.6 The website often provides product information, comparisons of alternative

providers, pricing and other information. Generally, the website includes an online form to enable

matching the consumer to the appropriate product or service providers. The operator of the website

that interfaces with the consumer is typically referred to as a “publisher” or “media partner.” Some

lead generators provide incentives to consumers to use their service, such as sweepstakes, gift

cards or rebates. Websites may also present offers of multiple different products (e.g., solar and

home warranties) as part of the consumer registration process for the primary offer (commonly

known as “co-registration” or “co-reg").

After a consumer affirmatively agrees to submit the information they provided, the lead

generator may connect the consumer with a provider in a variety of ways. The most common

method is a direct match approach; the consumer is matched directly to one or more provider(s)

offering the requested product and transfers the consumer’s contact information to such

provider(s).7 In this model, the provider is responsible for making contact with the consumer

directly, including by mail, phone call, text message, or email. Providers are typically referred to

as “advertisers.”

Alternatively, the lead generator may first seek to further pre-screen the consumer prior to

transferring the consumer or the consumer’s data to the advertiser. For example, a consumer

interested in geothermal heating for their home may be asked additional questions about their

home, location, and energy provider. If the consumer’s responses best match a specific advertiser,

5 See Attachment 1 for examples of lead generation contact forms. 6 Structures where the lead data is collected online by a publisher and then transmitted to an advertiser is referred to in the lead generation industry as “hosted lead generation.” 7 The match rate varies by product. It is driven by the fact that a consumer typically compares X number of providers before selecting a product. Websites typically look to match the consumer to an appropriate number of providers. For example, if consumers typically compare three mortgage providers the match rate will be less than three (e.g., 2.3). Industry contracts and processes ensure the match rate remains less than the comparison rate; leads from websites with overly high match rates will result in low-quality consumer engagement, which advertisers monitor and will not pay for.


the call (or data) will be transferred to that advertiser. Pre-screening saves both consumers and

businesses and consumers time and resources.

Publishers may also transfer the consumer’s information8 to an intermediary9 who bundles

data from multiple publishers for sale to larger advertisers. This model is particularly important

for smaller publishers that may not have the resources to attract larger clients on their own but who

provide a valuable service.10 In each case the consumer is connected to a provider of the

goods/services they are seeking.

b. Benefits of Lead Generation to Consumers and Competition

Both consumers and businesses benefit from lead generation. Consumers benefit by saving

the time they would have otherwise spent trying to research and compare products and prices

across individual businesses Additionally, many lead generators provide free content using

comparisons to assist consumers in making a purchasing decision.11 As one site advertised, “When

banks compete, you win!”12 In marketplaces such as mortgage lending, consumers also receive the

benefit of lower pricing; lead generation results in increased competition and lower rates.13

Businesses, and small businesses in particular, also benefit. Lead generation often employs

a “cost per action”14 business model that sizes the cost of media to the quality of leads produced.15

8 With appropriate affirmative consumer consent. 9 Also known as “aggregators.” 10 Many of the most valuable consumer content online is published by small sites (often only one person) who is intensely knowledgeable and passionate about a particular topic (e.g., credit card award miles programs). Being connected to larger advertisers enables the publisher to monetize their content and remain in business. In addition, larger advertisers find it difficult to manage payment and compliance issues across multiple small advertisers, and so turn to intermediaries to provide these services. 11 Publishers are already required to identify that comparisons may not include all service providers, and that the appearance of service providers may be impacted by the fact that they are paying the publisher. This is little different from advertising generally, whether done in print, via television, radio or otherwise. 12 Consumers receive these types of connection services across many industries including mortgages (www.lendingtree.com), home services (www.angieslist.com; www.homeadvisor.com), remodeling (www.houzz.com), student lending (www.edvisors.com), and more. 13 See, Jim-Hyuk Kim & Liad Wagman, “Screening Incentives and Privacy Protection in Financial Markets: A Theoretical and Empirical Analysis,” The RAND Journal of Economics, Vol. 46, Issue 1 (2015). 14 The four common costs per action are CPM (cost-per-thousand advertisement impressions), CPC (cost-per-click), CPL (cost-per-lead), and CPA (cost-per-action). In certain industries (e.g., mortgage, education), applicable law prohibits CPA payments so CPC and CPL dominate. 15 Michael Ferree, Transcript “Follow the Lead: An FTC Workshop on Lead Generation” (Oct. 30, 2015), available at https://www.ftc.gov/system/files/documents/public_events/684511/151030transcript.pdf (last accessed May 29, 2019), 15.


This assists businesses in identifying the specific consumers interested in their product (i.e., as

opposed to expending resources on mass media advertising campaigns). Because small businesses

often do not have the resources to launch costly mass market campaigns, lead generators enable

them to compete with bigger businesses and better manage advertising spend.

Consequently, lead generation is a marketing staple. In 2018 alone, the lead generation

industry was responsible for approximately three billion dollars of ad revenue.16 Since 2010, lead

generation constituted about 5% of all revenue generated through advertising in the United

States.17 As demonstrated by these figures, the lead generation industry boosts the United States

economy, promotes competition, and, supports many American jobs, directly and indirectly.

III. DISCUSSION

a. Recognizing the Bad Actors

Despite the positive impact the lead generation industry has had on the United States

economy, the industry as a whole has come under scrutiny in recent years. A limited, though

noticeably present, group of bad actors have manipulated lead generation techniques to take

advantage of consumers. A few of the current manipulation schemes include:

• Bait-and-switch. The bad actor uses misleading websites and forms to trick consumers into providing information which is then used to market a product that is unrelated to what the consumer sought. The FTC highlighted this fraudulent practice earlier this year in suing Day Pacer, LLC (“Day Pacer”).18 The FTC alleged that Day Pacer purchased leads from websites that obtained consumer information for job search assistance and unemployment benefits.19 Day Pacer subsequently used the leads to market post-secondary education programs—not job search or unemployment benefit assistance.20

• Misleading sweepstakes and contests. A bad actor offers a chance to win a gift card or other prize in exchange for a consumer’s personal information. While sweepstakes are a time-honored American tradition, meeting consumer expectations is critical. In some cases, the bad actor never actually awards the prize or gift card. Alternatively, the bad actor portrays a chance to win a prize as a guarantee of receiving such prize. Such incentives may also interfere with a lead generation form clearly and conspicuously disclosing the

16 IAB internet advertising revenue report, 2018 full year results, PricewaterhouseCoopers LLP (May 2019), available at https://www.iab.com/wp-content/uploads/2019/05/Full-Year-2018-IAB-Internet-Advertising-Revenue-Report.pdf (last accessed May 29, 2019). 17 Ferree at 21. 18The lead-generation bait-and-switch, FTC (April 12, 2019) available at: https://www.consumer.ftc.gov/blog/2019/04/lead-generation-bait-and-switch (last accessed May 29, 2019). 19 Id. 20 Id.


fact that a consumer is consenting to be contacted by distracting the consumer from important consent disclosures.

• Brand mimicking. The bad actor creates a consumer-facing website or form that appears to be that of a well-known company. Consumers unknowingly provide their information to the bad actor instead of the trusted company. Particularly bad actors may also suggest government affiliation.

Although the methods differ, each of these schemes rely on deception to obtain consumer

information. These fraudulent schemes undermine legitimate lead generation and hurt the

consumers and businesses that rely on it.

b. Increased Regulatory Enforcement

Regulators (in particular the FTC), have increased enforcement against bad actors. In just

the past couple years, judgments against and settlements have yielded millions of dollars in

penalties and imposed crippling restrictions on the defendants’ ability to conduct business in the

future:

• July 5, 2017; Blue Global, LLC, et al. The FTC alleged that Blue Global and its owner operated dozens of websites enticing consumers to complete loan applications that they then sold as leads to a variety of entities without regard for how the leads would be used or whether the data would remain secure. The stipulated judgment exceeded $104 million (which was suspended based on the defendants’ inability to pay). Additionally, the defendants agreed to strenuous prohibitions against misrepresentations, data security standards, and client due diligence requirements.21

• Nov. 8, 2017; Francisco Salvat, et al. The FTC and Dept. of Justice alleged that the defendants made millions of illegal calls to consumers on the Do Not Call Registry soliciting leads for solar panel installation companies. The defendants agreed to pay a $155,000 penalty and some of them accepted a permanent ban from the telemarketing industry.22

• Sept. 6, 2018; Sunkey Publishing, Inc. and Fanmail.com, LLC. The FTC alleged that the defendants operated websites falsely claiming to be affiliated with the military in order to generate leads for post-secondary schools. As part of the settlement, the defendants had to surrender the offending web domains to the FTC and pay penalties exceeding $12.1 million (which were suspended due to inability to pay). Additionally, the defendants were

21 FTC Halts Operation That Unlawfully Shared and Sold Consumers’ Sensitive Data, FTC (July 5, 2017), available at: https://www.ftc.gov/news-events/press-releases/2017/07/ftc-halts-operation-unlawfully-shared-sold-consumers-sensitive (last accessed June 8, 2019). 22 Solar Panel Lead Generation Robocallers Who Pitched Energy Savings Settle FTC Charges, FTC (Nov. 8, 2017), available at: https://www.ftc.gov/news-events/press-releases/2017/11/solar-panel-lead-generation-robocallers-who-pitched-energy (last accessed June 8, 2019).


required to inform companies that purchased the leads that they may no longer use them for any purpose.23

• May 14, 2019; Simple Health Plans LLC, et al. The FTC alleged that the defendants lured consumers through a network of deceptive lead generation websites that claimed to provide information about comprehensive health insurance, but the defendants actually offered high-cost discount medical plans¾not health insurance. U.S. Dist. Court for Southern Dist. of Florida preliminarily enjoined the defendants from making any misrepresentations, transferring customer data to third-parties, transferring assets. The court also appointed a receiver pending further proceedings in the case.24

Given the comments of FTC leadership, one may only expect enforcement activity to continue to

increase in coming years.

c. Self-Regulation Principles to Restore and Maintain Trust the Lead Generation

Industry

Bad actors have violated the privacy rights of consumers and endangered confidence in the

performance marketing industry. To combat this, PACE and other impacted industry associations

and businesses seek to work cooperatively with regulators to implement consumer protection

safeguards. Adoption of self-regulatory principles should be part of this process. The self-

regulatory principles align with three overall goals:

1. Informed Consumer Consent

1.1. Consumer Inquiry Forms must clearly and conspicuously disclose:

1.1.1. the number and type of companies with whom the consumer’s data will be shared; and

1.1.2. a list of all possible companies with whom the consumer’s data may be shared.

1.2. Consumer Inquiry Forms should clearly and conspicuously disclose an e-mail address, a toll-free telephone number or other reliable, free easy to use mechanism for consumers to opt-out of sharing of their information.

1.3. Clear and conspicuous disclosures should be easily readable, and be in equal to or larger type, than the surrounding text and in contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or

23 FTC Takes Action Against the Operators of Copycat Military Websites, FTC (Sept. 6, 2018), available at: https://www.ftc.gov/news-events/press-releases/2018/09/ftc-takes-action-against-operators-copycat-military-websites (last accessed June 8, 2019). 24 Simple Health Plans LLC Case Timeline, FTC (last updated May 14, 2019), available at: https://www.ftc.gov/enforcement/cases-proceedings/172-3148/simple-health-plans-llc (last accessed June 8, 2019).


other marks, in a manner that clearly calls attention to the language. Disclosures should be in at least 10-pt. font, unavoidable, and placed above any type of “submit” button. The consumer’s attention should not be drawn away from the disclosure through the use of graphics, bright colors, or other distractions. Consideration should also be given to optimizing the inquiry form to account for the viewing medium.25

1.4. If the inquiry form will obtain prior express written consent for future calls and/or text messages, the form must clearly and conspicuously disclose:

1.4.1. The phone number for which the consumer is providing consent;

1.4.2. The caller(s) to whom consent is provided;

1.4.2.1. If the caller(s) are not known, the quantity and type of caller(s) should be disclosed with a list of all possible callers available via hyperlink (e.g., “three lawn care providers” with “lawn care providers” being a hyperlink to the complete list of potential callers);

1.4.3. That calls/text messages will be for a marketing purpose;

1.4.4. If applicable, that calls/text messages may be delivered using an automatic telephone dialing system;

1.4.5. If applicable, that the caller may use prerecorded messages and/or artificial or synthetic voices; and

1.4.6. The consumer is not required to consent as a condition of purchasing any property, goods, or services.

1.5. If the inquiry form will obtain prior express written consent for future calls and/or text messages, the form should also clearly and conspicuously disclose:

1.5.1. That the consumer’s consent constitutes their electronic signature; and

1.5.2. That the consumer’s consent will override their request to be placed on any caller, federal, or state do not call list.

1.6. Inquiry forms must require the consumer to take an affirmative action to indicate their consent such as checking a box or clicking a properly-labeled button.

1.7. Inquiry forms must not use inducements such as sweepstakes, gift cards, or free merchandise to incentivize a consumer to complete a the form without clear and conspicuous disclosure of all material terms and conditions of the inducement and, with regard to sweepstakes and contests, all disclosures required by state sweepstakes and

25 See, e.g., .Com Disclosures: How to Make Effective Disclosures in Digital Advertising, FTC (Mar. 2013), available at: https://www.ftc.gov/sites/default/files/attachments/press-releases/ftc-staff-revises-online-advertising-disclosure-guidelines/130312dotcomdisclosures.pdf (last accessed June 26, 2019).


contests regulations (e.g., no purchase necessary, the odds of winning, eligibility restrictions).26

1.8. Lead generators must not use coercive tactics such as requiring consumer inquiry form completion (or consent for communications) as a requirement of obtaining services.

1.9. Lead generators must comply at all times with all applicable laws and regulations including, but not limited to, the Telephone Consumer Protection Act, Telemarketing Sales Rule, privacy and data security laws, and prohibitions against unfair, deceptive, or abusive acts and practices.

1.10. Lead generators should, whenever commercially reasonable, use an independent third-party lead verification service to provide evidence of consumer consent.

2. Protection of Consumer Data

2.1. Lead generation and advertiser websites should clearly & conspicuously disclose the links to their Privacy Policy and Terms of Use. The Privacy Policy and the Terms of Use behind such links should comply with all applicable laws and regulations. The identity and contact information of the lead generator site owner should be set forth in the Privacy Policy.

2.2. The Privacy Policy should disclose free and easy-to-use mechanisms (e.g., toll-free number, web form, email) by which a consumer may revoke their consent to future sharing of their data from that site.

2.3. Lead generators should contractually prohibit the further resale of consumer data by lead buyers unless the lead buyers contractually require downstream buyers to adhere to the same standards as the lead generator itself and have mechanisms in place to confirm compliance.

2.4. Lead generators must contractually require that lead buyers use consumer data in compliance with all applicable terms, conditions, laws, and regulations including, but not limited to, the Telephone Consumer Protection Act, Telemarketing Sales Rule, privacy and data security laws, and prohibitions against unfair, deceptive, or abusive acts and practices.

2.5. Lead generators and their sub-publishers should not use subsequent sub-publishers unless the subsequent sub-publishers are identified in the lead generation contract and they agree to adhere to the same standards as the lead generator itself.

3. Accountability and Remediation

3.1. Lead generators should use commercially-reasonable systems to monitor for contractual non-compliance by lead buyers and remediate and/or terminate buyers who violate contractual prohibitions.

26 In addition to state-specific disclosure requirements.


3.2. Lead generators should self-audit their compliance with these principles at least annually, document their findings, remediate deficiencies. Lead generators should retain an independent third-party to audit compliance with these principles at least every three years, document their findings, and remediate deficiencies

Government regulators such as the FTC could incentivize compliance by offering a safe

harbor or presumption of compliance for businesses that participate in the self-regulatory program.

Self-regulatory models have proven effective in other industries, such as in marketing and

advertising generally under the BBB National Program’s National Advertising Division program,

and in the broker-dealer profession under the Financial Industry Regulatory Authority. The

Professional Association for Customer Engagement’s own self-regulatory program for contact

centers has enhanced compliance by the contract center industry with telemarketing laws and

regulations. Implementation of a similar lead generation self-regulatory organization or program,

guided by the above principles, could restore trust in the lead generation industry, protect consumer

interests, and preserve a competitive advertising landscape that benefits small businesses and

consumers alike.

IV. CONCLUSION

Lead generation plays a vital role in the U.S. economy by connecting consumers who

voluntarily submit their information with providers of goods and services that they need.

Unfortunately, bad actors have co-opted the beneficial aspects of the industry to deceive

consumers and wrongfully obtain and transfer their personal data. The industry can, and should,

implement self-regulation that protects consumers while preserving the ability of legitimate

industry participants to continue providing services to consumers and businesses alike. Only

through effective industry self-regulation will lead generators be able to restore the trust of

regulators and consumers in the industry.


About the Authors

The Professional Association for Customer Engagement is the nation’s only non-profit trade organization dedicated exclusively to the advancement of companies that use a multi-channel contact center approach to engage their customers including via telephone, mail, email, and social media. PACE’s membership is made up of Fortune 500 companies, contact centers, BPOs, economic development organizations, and technology suppliers that enable companies to contact or enhance contact with their customers.

Mac Murray & Shuster LLP, PACE general counsel, is a nationally-recognized boutique firm providing consumer protection regulatory compliance and defense counsel to businesses operating in highly regulated industries. Led by former state regulators, including a former Ohio Attorney General and three Consumer Protection Chiefs, M&S helps clients nationwide thrive against a complex and evolving regulatory landscape through proactive compliance management and representation in litigation and other matters before state and federal agencies including the FCC, FTC, and CFPB.


Attachment 1

Documents

Restoring & Maintaining Trust › Files › Regulatory › Federal... · 2019-12-16 · Restoring & Maintaining Trust Page | 4 the call (or data) will be transferred to that advertiser