Some of our finance company clients and friends use “lead generators” to get names of potential loan customers. Lead generators mine consumer information by getting consumers to enter their financial information on websites, often representing that consumers will receive quality loan offers from lenders—known in the trade as “lead purchasers.” The language used by lead generators often implies or makes it seem that consumers who provide such information are providing it directly to lenders as opposed to what are really the “middlemen.” Then, the lead generators sell the information to the lead purchaser that is the highest bidder for the information.
Last December, the CFPB sued one such California lead generator -- D and D Marketing, Inc. d/b/a T3 Leads, and its owners. Last week, the Federal Judge in the case sustained each of the government's claims against T3's motion to dismiss.
Judge Gutierrez described the lead generation process as follows: “In reality, however, as soon as the consumer enters financial information, the ‘lead' is transferred to T3 and sold to ‘lead purchasers.' T3 aggregates the leads and sells them to the highest bidder through a software system known as ‘ping tree.' Because the whole process happens in a matter of seconds and the consumer is redirected to a lead purchaser website without notice, the consumer has no way of knowing that the representations made on the lead-generator website are no longer valid or that their financial information has been shared with third parties.”
The heart of the CFPB's case against T3 is that T3 committed abusive and unfair practices by failing to vet the companies that it dealt with, thereby allowing consumers to be steered to lenders with high interest rates, and that sometimes violated state usury laws. T3 argued in its defense that it had no obligation to police the types of loans that the lead purchasers were making, and that neither the Dodd-Frank Act nor public policy imposed such a duty upon it.
The CFPB countered by arguing that T3 is a “service provider” under the Dodd-Frank Act, and as such, has a duty to comply with Unfair, Deceptive or Abusive Acts and Practices (“UDAAP”) standards when consumers can be harmed by the services provided by the entities with which T3 has a business relationship.
The Court rejected the notion that the Dodd-Frank Act does not provide the Defendant in this case with “fair notice” of what the law requires, finding that both the language of the Act, and the actions of the CFPB over several years provide adequate notice to service providers of their responsibilities to neither commit nor be complicit in the commission of a UDAAP.
The decision of the Court in this case is not dispositive of the ultimate question of liability of T3. However, the case is now one that can proceed to make that determination on the merits.
The “take-a-way” for us is that the CFPB takes very seriously the responsibility of all service providers under the Dodd-Frank Act, to not engage in UDAAPs in their businesses. This case drives home the point that those who are not lenders, but who are involved in consumer financial services, must beware of Dodd-Frank's reach.