Five “Lessons” for Lead Generation Advertisers

By Jonathan Pompan

Law enforcement, workshops, and reports from the Federal Trade Commission (FTC) have yielded five “lessons” for lead generation advertisers, according to an article that was published last month in Law360 by Andrew Smith, director of the FTC Bureau of Consumer Protection. In it, he suggests that companies that purchase lead generation advertising must manage lead generators responsibly, just like manufacturers that make supply chain management a top priority.

The article drew attention from members of the lead generation advertising sector and their lawyers and compliance departments. Some commentators called it a tutorial on how to reduce risk in using lead generation advertising. For others the article was a cautionary tale of recent enforcement actions taken against a buyer of lead generation advertising and the lead generators spotlighted in the article. In any event, the article was certainly reflective of the FTC’s work in the lead generation area and reminder of the importance of legal compliance in the lead generation ecosystem.

According to Smith: “The complexity of the lead generation ecosystem isn’t a shield against liability, nor does it exempt you from honoring fundamental consumer protection principles. Advertisers should take the lead in ensuring the leads they use weren’t the product of deception.”

The article highlights lessons from a recent series of cases that allege deceptive marketing, including the first time the FTC has held an education company liable for the tactics of lead generators under the FTC Act and Telemarketing Sales Rule (TSR).

As alleged by the FTC, an education company used sales leads from lead generators that falsely told consumers they were affiliated with the U.S. military, and that used other unlawful tactics to generate leads. The company’s lead generators also allegedly induced consumers to submit their information under the guise of providing job or benefits assistance. The FTC also alleged that the lead generators falsely told consumers that their information would not be shared, and that both the education company and its lead generators illegally called consumers registered on the National Do Not Call (DNC) Registry. The education company agreed to a settlement with conduct prohibitions and a $30 million penalty.

The five “lessons” for users of leads from lead generators are:

1. Exercise Due Diligence
2. Establish Contractual Requirements and Service-Level Standards for Compliance and Performance
3. Reserve Audit Rights
4. Monitor Vendors and Take Action; and
5. Require Vendors to Maintain Same Standards with Subcontractors

While what passes for compliance with federal consumer protection law enforced by the FTC depends on the specific facts, the article does drill down on each of the five areas, providing insights into the lessons from recent law enforcement actions, FTC Workshop on Lead Generation, and reports involving the lead generation industry show that advertisers should consider when they buy consumer leads. For example, within the “due diligence” category, the article noted that an advertiser shouldn’t “hire any lead generator or aggregator that is fuzzy on the details” about how leads are obtained.

The article also suggested that buyers of leads could spell out compliance and performance standards in contracts, and audit against the law and performance standards. From our experience, we’d add that these standards should be updated as there are changes in the law and new legal interpretations, and as facts evolve.

In addition, it’s notable that the proposed settlement in the education company enforcement action requires the company to launch a system to review all materials that lead generators use to market its schools, to investigate complaints about lead generators, and to not use or purchase leads obtained deceptively or in violation of the TSR. The order also prohibits misrepresentations about any other benefits of any post-secondary school or any other of the defendants’ products or services.

In 2015, the FTC held a workshop on lead generation advertising (where this author was a panelist). “Lead generation is the process of identifying and cultivating individual consumers who are potentially interested in purchasing a product or service,” according to the FTC Bureau of Consumer Protection staff report on the workshop published in 2016. In addition, the Consumer Financial Protection Bureau, state Attorneys General, and state regulatory agencies, have scrutinized lead generation advertising.

We have frequently discussed the heightened government scrutiny of online lead generation advertising, including in webinars and at LeadsCon conferences, for example, “Ensuring Effective Compliance in Lead Generation,” and “Staying Current with Consumer Protection: Practical Lessons from Recent Enforcement Actions.” (For a write-up on the session, see What lead gen firms need to know about consumer protection laws.)

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Given the vast number of lead generators, aggregators, and buyers that fall under the jurisdiction of the FTC, advertisers and markets should assess their policies, procedures, and practices, as well the industry’s response, to make sure they continue to refine their compliance programs.

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Jonathan L. Pompan, partner and co-chair of Venable’s Consumer Financial Protection Bureau Task Force, advises on advertising and marketing and consumer financial services matters. He represents clients in investigations and enforcement actions brought by the CFPB, FTC, state attorneys general, and regulatory agencies. He was a panelist at the 2015 FTC Workshop: Follow The Lead.

This article is not intended to provide legal advice or opinion and should not be relied on as such. Legal advice can be provided only in response to a specific fact situation.