Payday Bar Association New Orleans

1
Payday Bar AssociationNew Orleans 11/5/09
Presented by

• Richard P. Eckman, Partner

2
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 advertiser.

3
Anatomy of a Lead Generator (contd)

• 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 advertisers 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.

4
Anatomy of a Lead Generator (contd)

• 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 consumers
  name, email address and checking account
  information through this process.

5
Anatomy of a Lead Generator (contd)

• 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.

6
Anatomy of a Lead Generator (contd)

• 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.

7
Anatomy of a Lead Generator (contd)

• Once accepted, the consumer is automatically
  directed to the lenders website.
• Lender is identified by a site brand and lender
  asks for additional information.
• For marketing reasons, the transition to a
  lenders website is often a seemless experience.
• Consumer completes the application, is provided
  with the appropriate disclosures, and closes the
  transaction.

8
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.

9
State Regulation of Lead Generators (contd)

• 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 consumers 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.

10
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

11
Brokering Prohibited (contd)

• 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.

12
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.

13
Federal Statutory Requirements (contd)

• 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.

14
Federal Statutory Requirements (contd)

• Responsibilities limited to providing short form
  privacy policy, right to opt out of providing
  non-public 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.

15
Federal Statutory Requirements (contd)

• Federal Can Spam requirements
• State privacy rules
• State data security statutes (California and New
  York)

16
Federal Statutory Requirements (contd)

• 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.

17
Can Spam (contd)

• 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.

18
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

19
For more information, visit www.pepperlaw.com