Enjoy access to a free NMLS renewal class when you attend an in-person event.
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?
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 is president and managing director of Lenders Compliance Group, Brokers Compliance Group, Servicers Compliance Group and Vendors Compliance Group, national companies devoted to providing regulatory compliance advice and counsel to the mortgage industry. He may be contacted by phone at (516) 442-3456, by e-mail at [email protected] or visit LendersComplianceGroup.com.