Transcript Payday Bar Association New Orleans – 11/5/09

Payday Bar Association
New Orleans – 11/5/09
Presented by:
Richard P. Eckman, Partner
8189525
Anatomy of a Lead Generator
• A lead generator or loan aggregator is a
conduit between publishers of information
and advertisers.
• Publishers include websites that advertise
products and services through the use of
banner ads, pop-ups, emails or text
messages.
• Advertisers sponsor banner ads and
provide the products and services
advertised.
• A payday lender is an example of an
Anatomy of a Lead Generator (cont’d)
• Lead generators are paid based on a per
lead, per impression or per action basis.
• For example, a lead generator could
charge a fee every time a consumer clicks
on a banner ad that provides a link to an
advertiser’s website. This is an example
of a per impression type of fee.
• Lead generators can track payments owed
through the use of tracking pixels placed
on web properties.
Anatomy of a Lead Generator (cont’d)
• Variations include collecting names of
consumers that are interested in a
particular product such as a payday loan
using pop-up ads, email invitations, or
search engine hits.
• A lead generator may actually obtain a
consumer’s name, email address and
checking account information through
this process.
Anatomy of a Lead Generator (cont’d)
• Once the consumer is exposed to the
invitation, they are directed to a website
owned by the lead generator called a “landing
page”.
• The landing page requires a consumer to:
– agree to the privacy policy of the lead generator
– confirm their interest in having their data sent to a
lender
– fill out a generic loan form that asks for certain
information about the consumer
• The first touch of the consumer is by the
publisher, not the lead generator.
Anatomy of a Lead Generator (cont’d)
• The lead generator qualifies the lead by:
– making sure all information provided by the
consumer is complete
– checks whether the consumer has made multiple
inquiries
– checks for fraud, i.e. fraud rings, fraudulent IP
addresses, etc.
– Logic checks, i.e. address, city, state and USPS
deliverability standards
• Lead generators can have hundreds of
landing pages.
• At this point, the lead generator accepts
or rejects the lead.
Anatomy of a Lead Generator
(cont’d)
• Once accepted, the consumer is
automatically directed to the lender’s
website.
• Lender is identified by a site brand and
lender asks for additional information.
• For marketing reasons, the transition to
a lender’s website is often a seemless
experience.
• Consumer completes the application, is
provided with the appropriate
disclosures, and closes the transaction.
State Regulation of Lead Generators
• Eleven states require brokers of payday
loans that “broker”, “arrange” or “facilitate”
the origination of a payday loan to be
licensed or registered with a state:
Alaska, Arizona, California, Colorado,
Idaho, Illinois, Maine, Montana, Oregon,
Rhode Island, North Carolina
• Alaska, Arizona and California laws apply
only to deferred deposits of checks and
therefore by their terms do not apply to
internet payday loans.
State Regulation of Lead Generators
(cont’d)
• Colorado law applies to deferred
deposit or an authorization to transfer
funds signed by the consumer.
• Montana law applies to loans that
include written authorizations for a
consumer to electronically deduct
money from a consumer’s account on a
specific date for the loan and fees.
• In North Carolina, a loan broker is
required to register with the Secretary
of State and provide state specific
disclosures.
Brokering Prohibited
• 15 states and the District of Columbia
prohibit payday loans:
Arkansas, Connecticut, Georgia, Maryland,
Massachusetts, Michigan, New Jersey,
New York, North Carolina, Ohio,
Pennsylvania,
Texas, Vermont, Virginia, West Virginia and
District of Columbia
• 6 states impose criminal penalties for
assisting in the making of a non-compliant
loan:
District of Columbia, Georgia, Texas, Ohio,
Pennsylvania and Virginia
Brokering Prohibited (cont’d)
• Unclear whether a lead generator is a broker,
arranger or facilitator.
• Most lead generators do not comply with state
laws in this area. View themselves as “finders”.
–
–
–
–
Lack of regulatory action
Lack of litigation
Questionable application of laws
Industry as a whole does not register
• Since lead generators do not know the legal
residence of the borrower, the holding in Pioneer
Military Lending v. Manning, 2 F.3rd 280 (8th Cir.
1993) may be applicable.
Federal Statutory Requirements
• Fair Credit Reporting Act
– Is the information collected enough to be a
“consumer report”?
– Limited actions by lead generator may not
make information collected a consumer
report.
– Possible “joint user” exception.
Federal Statutory Requirements
(cont’d)
• GLBA
– Title V of Gramm Leach Bliley Act (GLBA)
– Is a lead generator a “financial institution”?
– If a lead generator is an entity that is
“significantly engaged” in any activity that the
FRB has determined meets the “closely related”
or “financial in nature” test, it is an entity subject
to the Title V requirements.
– Providing data processing services, data storage
or data transmission and acting as a finder may
apply.
– Customer relationship or consumer relationship.
– If customer relationship, greater responsibilities.
– Appears that most lead generators do not have
customer relationships.
Federal Statutory Requirements
(cont’d)
• Responsibilities limited to providing short form
privacy policy, right to opt out of providing nonpublic financial information to third parties.
• Under the “isolated transaction rule”, lead
generators do not need to wait the 30 days for the
opt out.
• Under the data security “safeguard rule”, lead
generators must meet certain technical safeguard
requirements for information security.
Federal Statutory Requirements
(cont’d)
• Federal Can Spam requirements
• State privacy rules
• State data security statutes
(California and New York)
Federal Statutory Requirements
(cont’d)
• Can Spam
– Applies to email messages whose
primary purpose is the advertisement or
promotion of a commercial product or
service.
– Header information cannot be material,
false or misleading.
– Must identify the person sending the
message.
– Re: lines must accurately reflect the
content of the message.
Can Spam (cont’d)
– Recipients must be allowed to opt out of future
mailings – implemented within 10 business
days after receipt of consumer request to opt
out.
– Reply or opt out must be clearly and
conspicuously displayed and capable of
returning emails for at least 30 days after the
original email is sent.
– Emails must be clearly and conspicuously
labeled as advertisements or solicitations.
– Must include a valid physical postal address of
the sender in the opt out notice.
State Privacy Laws
• California SB-27 requires certain
businesses to disclose their
information sharing practices with
their customers who request such
information.
• Data Security and Notification of
Security Breach Statutes:
– California
– New York
For more information, visit
www.pepperlaw.com