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Disclosure Confusion in the Online Lead Generation Industry

Posted in CFPB General, FTC, Hot Issues, Lead Generation, UDAAP

This post is the second in a series we’re writing on the FTC’s workshop on online lead generation entitled Follow the Lead. In our first post, we explored how online lead generation works. Here, we will discuss two fundamental questions surrounding the role that disclosures can and should play in the industry: What should be disclosed to consumers? What’s the best way to ensure disclosure?

What should be disclosed?

As to the first question, the workshop panelists pointed to several facts  that they believed were inadequately disclosed to consumers. Chief among them was the fact that lead generators are distinct from the lenders, retailers, employers, or other entities that they may serve.  Participants also faulted some lead generators for failing to disclose the nature of the products. A few pointed to the example of a lead generator for online payday loans that “disguised itself” to look like an online job application. Another key theme was that lead generators often failed to adequately disclose how widely the data that consumers submit to them may be disseminated. Of course, most lead generators don’t engage in these practices. Yet, because this market has heretofore been largely unregulated, it should not be surprising that some bad actors have thrived.

What disclosures can’t accomplish?

Panelists also discussed how disclosures can be structured so they accomplish their primary purposes – to help consumers understand the implications of their actions and make decisions accordingly. Central to this discussion was whether a subsequent disclosure could cure an initial deception. To take the loan-disguised-as-job-application example above, the question was raised: Could a disclosure on the landing page cure the deception caused by including a link to a loan application among a list of job openings? The answer that the panelists reached, and with which we agree: probably not.

Is a “reasonable expectation of consumers” standard the answer?

Looking at this problem, one panelist suggested that no amount of disclosure could cure the “fundamental” deceptiveness of the lead generation market because the website’s use of the information, among other practices, did not comport with the “reasonable expectations of consumers.” It’s unclear what the panelists that used this phrase meant. But, if it was more “know-it-when-you-see-it” regulation, many industry members believe that’s not the answer.

According to industry members, a “reasonable expectations” standard, while reasonable-sounding, is likely to be unreasonable and unworkable in practice for several reasons. Over time, it would likely devolve into a “least sophisticated consumer” standard.  Under that standard, if any consumer misunderstands a product or service, however willfully blind he or she may be to obvious signposts, the business is liable for having violated UDAAP. This creates uncertainty and increases costs for consumers and businesses alike. Such a standard may also lead businesses to chase their tails over issues that are exceedingly unlikely to ever cause a problem.

To its credit, the FTC opened the workshop by discussing a study finding that the ability to sell consumer information led to lower costs for consumers and higher quality financial products being offered. So, the destructiveness that a “reasonable expectations standard” may have on the marketplace is real and has the potential to deprive consumers of the benefits of this valuable service.

Industry Suggestions for Achieving Appropriate Disclosure

How then do we ensure appropriate disclosure? It’s a difficult question, especially given two facts that other panelists pointed out: First, consumers don’t generally read existing disclosures. Second, the industry is fragmented, making regulation of the whole process exceedingly difficult. While there are no easy solutions to this problem, panelists suggested that there are some commonsense readily-available tools that industry and government can use to dramatically improve the lead generation marketplace for consumers and businesses alike:

  • One Step Up and One Step Down: Each player in the lead generation process can take the time to look upstream and downstream to see, for example, from whom they are purchasing leads and to whom they are selling leads. They can take the time to audit the affiliate websites of the sellers and the buyers. For the affiliates from whom they purchase leads, they can ask to see copies of their websites and review the content periodically. For sellers who are lenders, check licenses, check websites and disclosure forms, and check loan terms, among other things. A panelist from Lending Tree described the company’s efforts in this regard as being remarkably successful.


  • Let Consumers Help: Most websites already contain “report abuse” or “flag problem” boxes or general complaint portals. Web advertisers such as job posting sites can monitor these responses and make changes to posts that consumers actually find to be misleading. This gets around the problem of constantly getting into consumers’ heads and guessing about whether they were deceived. Instead, let’s focus on what they actually find to be problematic.


  • Standardized Disclosures: From a regulatory perspective, government can work with industry to develop standardized plain-language disclosures, as exists with nutrition labels, tobacco warnings, or TILA interest rate disclosures. That way, both consumers and businesses could enjoy certainty and the efficiencies and cost-savings that would follow. When it comes to privacy disclosures, better yet would be a government-approved menu of form disclosures that a business could choose from, to provide the clarity and flexibility needed to make the marketplace work effectively.

To go back to our main theme, none of the problems that the panelists identified are caused by lead generation in and of itself. The deception is caused by a combination of bad actors and consumers who aren’t devoting full attention to the road. Many in the industry believe that it would be better to structure the solution around those problems: let the government create a few standardized “bright light” disclosures about the key issues that consumers care about to keep them alert; require industry participants to take reasonable steps to make sure they aren’t benefitting from reckless conduct; and keep consumers behind the wheel of deciding what works best for them.

In our next post, we’ll discuss the allegation that lead generation is “inherently deceptive” and contrast it with the FTC’s own findings that the ability to sell data results in better financial products at lower prices for consumers.

CFPB continues to sharpen focus on small business lending

Posted in Marketplace Lending, Small Business

Evidence of CFPB interest in small business lending continues to mount.  While it was not surprising to see federal regulators attending the American Banker’s Marketplace Lending +Investment conference in New York City two weeks ago since many marketplace lenders make consumer loans, the CFPB also had several representatives attend the American Banker’s Small Business Banking conference in Nashville earlier this week.  I attended the conference and spoke on class action and regulatory risk in small business lending.

In a surprise address, made possible by a scheduled speaker’s travel difficulties, Dan Sokolov, the CFPB’s Deputy Associate Director for Research, Markets & Regulations, explained the CFPB’s interest in the conference.  He indicated that, while the CFPB’s focus is on consumer lending, the Bureau also has some jurisdiction over small business lending, such as the authority to enforce the Equal Credit Opportunity Act (“ECOA”).  He discussed the expanded small business lending data collection requirements of Dodd-Frank Section 1071, and indicated that the CFPB is in the process of standing up an interdisciplinary team to implement Section 1071.  (Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data include the race, sex, and ethnicity of the principal owners of the business.)  Mr. Sokolov indicated that the CFPB was attending the conference for research purposes, to prepare for its work in the small business area.

Mr. Sokolov asked for help in identifying an industry veteran to serve as the Bureau’s “Assistant Director, Small Business Lending,” who will be charged with leading the Section 1071 inter-disciplinary team.  He distributed a flyer about the position.  Notably, the flyer hints at a broader role for the CFPB in small business lending than its jurisdiction permits.  In addition to other responsibilities, the new Assistant Director will “[m]onitor, analyze, and interpret developments in small business loan products”; and he or she will have a “once-in-a-career opportunity to make the market for small business finance fairer and more transparent.”

In August 2015, Ballard Spahr attorneys conducted a webinar: “Pushing the Envelope: Are There Limits to the CFPB’s Jurisdiction?” in which we discussed the CFPB’s continuing “jurisdiction creep” and explored the limits of the CFPB’s jurisdiction.



CFPB brings administrative action against online lender

Posted in CFPB Enforcement

The CFPB announced earlier this week that it has initiated an administrative action against a Delaware-based online lender and its CEO for alleged violations of Truth in Lending Act, the Electronic Fund Transfer Act (EFTA), and the CFPA’s UDAAP prohibition.  The announcement is unusual since it has not been the CFPB’s typical practice to announce an administrative action without the simultaneous announcement of a settlement.  In the action, the CFPB seeks redress for harmed consumers, as well as a civil money penalty and injunctive relief.

In its press release, the CFPB  stated that from May 2008 through December 2012, the lender offered short-term loans to borrowers around the country in amounts ranging from $100 to $1,000.  To apply for the loans, borrowers typically entered their personal information into a lead generator website.

The unlawful practices alleged by the CFPB include:

  • Hiding the total cost of loans by using disclosures that were based on a borrower’s repayment of a loan in a single payment, even though the loan agreement’s default terms called for multiple rollovers and additional finance charges.
  • Requiring repayment by pre-authorized ACH payments.  According to the CFPB, this practice violated the EFTA prohibition on conditioning a loan on the borrower’s repayment through recurring pre-authorized electronic fund transfers.
  • Continuing to debit borrowers’ accounts after the borrowers had canceled his or her ACH authorization.  According to the CFPB, the lender’s loan agreements included a “hidden” provision allowing it to use remotely created checks if a borrower successfully canceled an ACH authorization.

American Banker claims CFPB complaint database believed to be unreliable

Posted in CFPB General

A recent article by the American Banker claims, based on undisclosed CFPB documents and interviews with current and former agency officials, that the CFPB’s consumer complaint database is widely held to be inaccurate and untrustworthy. The article points to what it believes to be egregious instances of duplicative complaints as well as the misidentification of companies.

The primary practice responsible for these inaccuracies appears to be a process by which the consumer may name multiple companies when submitting a complaint, resulting in separate complaints for each. Where a consumer names many companies, perhaps out of a misunderstanding as to which they truly wish to complain about, each of those appears in the database as a separate complaint about each company named.

This mechanism has both advantages and drawbacks. Often, issues related to consumer financial products and services are complicated, such that consumers struggle to identify the appropriate company responsible, and, according to CFPB spokeswoman Moira Vahey, this process is the only way to ensure that every company potentially involved is given an opportunity to respond. In other cases, multiple companies may disagree as to who is responsible or several companies may play a role in the complaint, for example, in the instance of a complaint against both a credit reporting agency and a creditor regarding disputed information.

However, where consumers are habitual complainers, this procedure allows complaints to proliferate within the database. Consumer Response’s procedures for removing duplicate complaints only allow for consolidation where the exact same complaint is filed against the same company. Investigators also have some discretion to identify duplicate complaints against the same company that do not use identical language but this is rare in practice.

There can also be problems during the intake process, such as where a company is misidentified, where paper documents are transcribed by intake personnel, or where statements are taken over the phone. For some of these issues, the Portal is better equipped for revision than for others. When a company is misidentified, the company receiving the complaint may indicate that this is so through the administrative response categories, which will prevent the complaint’s publication in the database with respect to that company. But complaints where an incorrect consumer name is transcribed are not terribly uncommon. And complaints taken in writing often provide a shortened version of the consumer’s narrative. Furthermore, the agency is contending with larger and larger volumes of complaints and has limited resources, including technological capacity, to ensure accuracy and minimize redundancy.

While a database of consumer complaints that fairly reflects problems in the consumer financial marketplace would undoubtedly be a valuable font of information, the existing system is hampered by rigid technology and limited resources. Consumer Response has shown a receptiveness to making improvements, including issuing a Request for Information on “normalizing” the public database. The CFPB holds industry to a high standard, and should set a similar standard for the quality of its own data. But more improvements must be made if the goal of creating a transparent and fair marketplace for consumer credit is to be achieved. As a federal government agency, the CFPB should seek to treat industry as fairly as it treats consumers.

My colleagues Bo Ranney, Chris Willis and I recently spoke in a webinar on how companies can best meet CFPB expectations regarding consumer complaints. We regularly work with clients on their complaint management systems, policies and procedures.

House passes bill to nullify CFPB indirect auto finance guidance

Posted in Auto Finance, Fair Credit

Yesterday, by a vote of 332-96, the House of Representatives passed H.R. 1737, the “Reforming CFPB Indirect Auto Financing Guidance Act,” which would nullify the CFPB’s indirect auto finance guidance issued in March 2013 and require the CFPB to provide for a notice and comment period before issuing any new guidance on indirect auto finance.  (The CFPB’s 2013 guidance targeted the practice of “dealer markups” and indicated that the CFPB intended to use a disparate impact theory to establish an indirect auto finance company’s ECOA liability for pricing disparities on a prohibited basis.)

The bill also includes requirements for the CFPB when proposing and issuing such guidance to (1) make publicly available “all studies, data, methodologies, analyses, and other information” it relied on, (2) consult with the Fed, FTC and DOJ, and (3) conduct a study of the guidance’s impact on consumers and “women-owned, minority-owned, and small businesses.”

Earlier this week, the White House issued a statement indicating that it strongly opposed passage of H.R. 1737.  Nevertheless, the House vote indicates that the bill had bipartisan support.


CFPB issues FY 2015 financial report

Posted in CFPB General

The CFPB has issued its financial report for its 2015 fiscal year, which ended on September 30, 2015.  The report indicates that the number of CFPB employees grew from 1,443 in FY 2014 to 1,529 in FY 2015.  Transfers to the CFPB from the Fed (which are capped by Dodd-Frank at a pre-set percentage of the Fed’s total 2009 operating expenses, subject to an annual adjustment) decreased from $534 million in FY 2014 to $485 in FY 2015.  The report also indicates that as of the end of FY 2015, 45% of the CFPB’s employees were in its Supervision, Enforcement and Fair Lending Division.  (This percentage was the same as of the end of FY 2014.)  Despite the enormous growth in the number of CFPB employees and funding since FY 2011 (663 employees and $162 million in transfers), the CFPB states in the new report that “at the end of fiscal year 2015, the CFPB was still below the steady-state employment levels and funding it estimates it will need to achieve the mission and responsibilities mandated by Congress in the Dodd-Frank Act.”

The report includes the CFPB’s annual report on its civil penalty fund (CPF).  It states that as of September 30, 2015, the CPF had $136.6 million in funds available for future allocation to harmed consumers and/or financial education.  As in FY 2014, the report indicates there was no allocation for financial education in FY 2015.  The report states that in FY 2015, the CFPB collected civil penalties in 37 cases totaling $183.1 million.  This represents a substantial increase from the $77.5 million in civil penalties collected by the CFPB in FY 2014.  The report also provides information on allocations made to consumers from the CPF during FY 2015.

The report contains an independent auditor’s report from the U.S. Government Accountability (GAO).  In the audit report, the GAO states that during its FY 2015 audit, it found that the CFPB had sufficiently addressed deficiencies in its internal controls over reporting of accounts payable that were noted in the GAO’s FY 2014 audit report.  However, the GAO states that during its FY 2015 audit, it “continued to find that CFPB did not effectively implement internal controls over the recording of its property, equipment, and software, which led to significant, but not material, misstatements in its financial statements.”  Among the other deficiencies noted by the GAO was the CFPB’s failure to have “effective review procedures to timely detect and correct errors in its records.”  Director Cordray’s response to the report is included as an appendix.

Former senior CFPB enforcement attorney James Kim joins Ballard Spahr

Posted in CFPB Enforcement

I am pleased to introduce my new colleague James Kim, an experienced financial services litigator and regulatory attorney, who recently served as a senior enforcement attorney with the CFPB.

While at the CFPB, James led nationwide investigations involving consumer credit, mobile financial services, emerging payment systems, mortgage origination, and debt collection.  He was lead counsel in the CFPB’s first enforcement actions involving mobile payments and was a member of the credit card/prepaid card/emerging payments issue team that helped coordinate enforcement activity with other offices at the CFPB.

Also while at the CFPB, James helped manage relationships with U.S. Attorneys’ Offices, state attorneys general, and state banking regulators and drafted sections of the Office of Enforcement’s internal policies and procedures.  As a result of his substantial CFPB experience, James is uniquely positioned to help clients avoid or navigate CFPB investigations.

James has extensive experience with federal consumer finance laws, including UDAAP, TILA, RESPA, EFTA, and the FDCPA.  He also has particular skill and experience helping consumer finance clients with matters involving technology, such as financial technology (FinTech) and the launch of card and smartphone-related products.  In addition to his regulatory work, James has tried, as first or second chair, more than 20 cases to verdict and has briefed criminal and civil appeals before the U.S. Court of Appeals for the Second Circuit and the New York State Appellate Division.

James is the third attorney to join our practice from the CFPB.  Bowen “Bo” Ranney was an examiner-in-charge with the CFPB, working in both supervision and enforcement. Tristram Q. Wolf was a CFPB investigator.

I expect James to be a valuable resource to our clients.

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NY Times publishes another article on arbitration

Posted in Arbitration

This past Sunday, the NY Times published an article carrying the headline, “Efforts to Rein in Arbitration Come Under Well-Financed Attack.”  The “well-financed attack” to which the headline refers appears to be an advertisement critical of the CFPB that ran during last week’s Republican presidential debate and recent efforts by the U.S. Chamber of Commerce to require the CFPB to conduct another study before issuing an arbitration rule.

This article follows the NY Times’ publication of a series of three articles that were highly critical of arbitration.  It also references recent efforts of arbitration opponents to curtail its use, including the proposal of the Department of Justice to amend the Servicemembers Civil Relief Act (SCRA) to make unenforceable arbitration agreements in contracts with servicemembers that provide for the use of  arbitration to resolve SCRA claims unless all parties consent to arbitration after a dispute arises.

Lawmaker seeks information on CFPB’s role in regulating online lending to small businesses

Posted in Fair Lending, Small Business

Congresswoman Nydia Velázquez, ranking Democratic member on the House Small Business Committee, has sent a letter to Director Cordray and Mary Jo White, SEC Chair, seeking information about the roles of the CFPB and SEC in regulating online lending to small businesses.

In her letter, Ms. Velázquez raises concerns that “small business consumers and retail investors that participate in the online lending market may face undue risks, and lack basic consumer protections, as a result of the current regulatory environment.”  She references the Treasury Department’s July 2015 Request for Information (RFI) regarding marketplace lending.  Among the RFI’s objectives is to help the Treasury Department become better informed about the impact of marketplace lending on small businesses.

Ms. Velázquez wants the CFPB and SEC to respond to five questions that ask (1) which federal laws under each agency’s jurisdiction apply to small business borrowers and investors participating in the online lending marketplace, (2) what is the current role of each agency in regulating or overseeing such marketplace, (3) what resources has each agency devoted to regulating such marketplace, (4) whether the  agencies believe they have the necessary authority to protect small business borrowers and investors participating in the online lending marketplace, and (5) what statutory changes, additional legal authority, and resources are necessary to support the agencies’ roles in regulating online lending as it relates to small businesses.

We recently blogged about the CFPB’s apparent interest in small business lending and noted that the CFPB has authority to enforce some statutes that apply to small businesses, such as the ECOA and FCRA.  We will be interested to see whether, in responding to Ms. Velázquez’s letter, the CFPB suggests that it has broader authority in the area of small business lending.  If so, it may portend yet another attempt by the CFPB to aggressively test the limits of its jurisdiction.  In August 2015, Ballard Spahr attorneys conducted a webinar: “Pushing the Envelope: Are There Limits to the CFPB’s Jurisdiction?” in which we discussed the CFPB’s continuing “jurisdiction creep” and explored the limits of the CFPB’s jurisdiction.

There has been growing pressure on the CFPB from lawmakers and consumer groups to expedite rulemaking to implement the small business lending data requirements of Dodd-Frank Section 1071.  Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data includes the race, sex, and ethnicity of the principal owners of the business.

Financial literacy highlighted in Director Cordray’s remarks to the American Bankers Association

Posted in Financial Literacy

Financial literacy was the focus of Director Cordray’s remarks last week at the American Bankers Association Annual Convention.  He identified three areas where the CFPB is focusing its efforts and where financial institutions can “band together with [the CFPB]” to advance such efforts.

The first area of focus is financial education in schools, with the goal of helping young people increase their financial capability.  Director Cordray commented that he is seeing financial institutions across the country devote “time and effort to finding ways to help young people obtain financial know-how and skill,” including providing support for teacher training.  He also discussed the importance of integrating financial education into the school curriculum and urged attendees “to set the goal of making sure that financial education is required learning in all 50 states.”

The second area of focus is workplace financial education.  Director Cordray commented that financial institutions “should lead by example” and model employee financial education for other employers.  He stated that the CFPB wants “to see big banks, small banks, community banks – all financial providers of all shapes and sizes – and all employers across the entire economy find better ways to connect with their employees during [various] key life moments and implement programs to boost financial capability.”  He also commented that banks “can make it a priority to educate their own employees and help them develop and use sound financial strategies, including savings for both emergencies and retirement” and that the CFPB also wants banks “to be conscious of what more you can do to ensure that your employees understand and optimize the existing benefits already available to them.”  He suggested that banks “launch strategic awareness campaigns to promote positive financial behavior.”

The third area of focus is financial well-being for older Americans.  Director Cordray noted that the CFPB has released guides for lay fiduciaries and discussed the CFPB’s efforts to help older people and their families prevent elder financial exploitation.  He commented that “to [banks’] credit,” the CFPB has found that “banks are often the first ones to spot these danger signs” and “can often act to stop older accountholders from being victimized.”  He also praised the American Bankers Association Foundation for recently launching the “Safe Banking for Seniors” campaign.