QUESTION
We
are thinking about obtaining leads from an online lead generation service. In
the process of reviewing our marketing campaign, it seems pretty clear that
there are different types of lead generators. What are the different types of
lead generators? What are some pitfalls? Also, what is a lead?
ANSWER
For
the most part, the Federal Trade Commission (“FTC”) has broad jurisdiction over
lead generators. The FTC has used its authority to bring enforcement actions
against unscrupulous actors in the lead generation industry. Examples abound,
such as where the FTC successfully sued lead generators that lured consumers
with promises of extremely low fixed rate mortgages or free refinancing, but
then sold consumers’ information to entities that did not actually offer these
deals, or where it sued payday loan lead generators that sold consumers’
sensitive bank account information to non-lenders who simply debited charges
directly from consumers’ accounts without authorization.
I
have written extensively on lead generation generally and lead generation
companies in particular, such as my article titled, “The
Lead Generation Company: Managing the Risks,” which can be
found in our Articles library. This article is a good place to start your
reading on lead generation companies, especially in light of the significant
regulatory risks posed by them.
Lead
generation is the process of identifying and cultivating individual consumers
who are potentially interested in purchasing a product or service. The goal of lead
generation services is to connect lead purchasing companies with the profiled
consumers so that the lead purchaser can convert “leads” into sales. The FTC
has defined a lead broadly as any consumer who has indicated interest –
directly or indirectly – in buying a product or service by taking some action.
Leads
cover the gamut of consumer profile information. For instance, they may consist
of little more than a consumer’s name and contact information. But they can
contain information that has been derived by soliciting much more detailed and
sensitive consumer information, like Social Security Numbers and bank account
numbers; in other words, not just information in the public record.
The
lead generation world is very state-of-the-art these days. Consider that
consumers increasingly research and shop for products and services online, which
means that lead generation has become more sophisticated, rapid, and
data-intensive.
Leads
are collected from many sources. Often, leads are collected by a publisher or affiliate.
This entity is encountered by the consumer through the consumer’s use of
consumer-facing marketers in the lead generation ecosystem that promote
products or services online. These conduits encourage consumers to submit
additional information about themselves to learn more and connect with
merchants or advertisers that can sell them the products or services being
sought by the consumer. Many publisher websites contain marketing claims and a
web form requesting consumer information. Some publishers expressly identify
the merchant to which they sell consumer leads, but others do not and only make
generic marketing claims.
In
our reviews of client marketing strategies, we have seen where small
publishers simply collect consumer information and pass it on to larger, more
sophisticated actors in the lead ecosystem. We have also found that some
publishers oversee networks of sub-publishers or sub-affiliates that feed them
leads, often contracting with the latter to create marketing websites and web
forms.
There
are many types of lead sources and lead generation methods. I will mention the
salient types.
Leads
Transmitted to Aggregators: These are intermediaries that take in leads
collected by multiple website publishers and prepare them for sale to their
clients, which may be end users or even other aggregators. Generally, the
aggregator identifies the leads that would be most valuable or relevant to
their clients and to package the leads accordingly. Unless an aggregator
chooses to operate its own websites or engage in consumer-facing marketing, its
role may be largely invisible to consumers who fill out online forms.
Leads
Sold to End-Buyer Merchants: These are leads sold to end-buyer merchants
or advertisers that can sell consumers the products and services they are
seeking. By using these leads, merchants will frequently contact consumers
directly in order to pitch services and provide additional marketing materials about
a potential transaction.
Leads
Verified or Supplemented with Additional Information: These
leads stem from a pruning process, whereby merchants and others in the lead
generation ecosystem seek more data about leads. Reasons for seeking additional
information include further verification of the accuracy and validity of the
information consumers provide in web forms, supplementation of consumer leads
with additional data for a fuller picture of a consumer, or the scoring of
leads based on their potential qualifications or value. The pruning process
could include even contacting consumers directly, for instance, by calling them
over the telephone. Some merchants, aggregators, and publishers seek supplemental
information from third-party data brokers, firms that unfortunately often act
without transparency and accountability.
Finally,
lead generators may sell “remnant leads” that can target consumers unlawfully. These
are leads where the lead purchaser has no legitimate need for the consumer’s sensitive
data. The FTC has brought enforcement actions based on the prevalence of
remnant leads. Even lead generators are very cautious in how they sell remnant
leads. Depending on the circumstances, they could be liable under the FTC Act
if the purchaser has no legitimate need for the information, especially since
privacy policies on many publisher websites provide few restrictions on the use
or sale of the consumer information collected by the lead generator.
If
you plan to use a lead generation company, I strongly advise that you vet it as
a service provider, using the kind of due diligence review resources offered by
our affiliate Vendors
Compliance Group. Whatever you decide in developing your
marketing campaign, keep in mind that the FTC has demonstrated significant
concern about lead generators’ collection and sharing of consumer information,
given that such information increases the risk of misuse and harm to consumers.
Jonathan Foxx
Managing Director
Lenders Compliance Group
