Recent FTC Settlement Provides Valuable Lead Generation Compliance Reminders

By Richard NewmanAugust 30, 2019

On August 27, 2019, the FTC announced a $30M settlement with an operator of several post-secondary schools to resolve charges of deceptive lead generation activities.

As set forth below, this case illustrates the importance of lead purchasers monitoring what others – including lead generators – are doing on their behalf and the need to respond forcefully in the face of misleading claims or conduct.  Lead purchasers should take proactive steps to ensure that leads they use are not the product of deception.

The Alleged Facts

According to the FTC, the operator used sales leads from lead generators that falsely told consumers they were affiliated with the U.S. military, and that used other unlawful tactics to generate leads.  In addition to allegations that the lead generators falsely represented that schools were affiliated with or recommended by the military, the FTC alleged that the operator’s lead generators induced consumers to submit their information under the guise of providing job or benefits assistance.

The FTC also charged that the operator’s lead generators falsely told consumers that their information would not be shared, and that both the operator and its lead generators illegally called consumers registered on the National Do Not Call Registry.

According to the FTC’s complaint, since at least 2012, the operator and its subsidiaries used an illegal and deceptive telemarketing scheme to lure consumers to their post-secondary and vocational schools.  The operator’s lead generators tricked consumers into giving their contact information by pretending to offer services unrelated to post-secondary education, the FTC alleged.

For instance, the complaint alleges that some of the operator’s lead generators posed online as official U.S. military recruiters or as job-finding services, then called consumers whose contact information was solicited under those false pretenses.

The FTC asserts that the operator’s lead generators then continued to misrepresent that the military, or an independent education advisor, recommended the operator’s school.  Three of the lead generators have themselves been the subject of FTC law enforcement actions.

The FTC also charged that the operator and its lead generators violated the agency’s Telemarketing Sales Rule (TSR).  The FTC alleged that some of the targeted consumers expressed no interest in college or the operator’s schools, while others expressed interest in the operator’s schools under the false impression that the military, an independent education advisor, or an employer recommended or endorsed the operator’s schools.

Allegedly, these consumers nevertheless received a sales pitch, urging them to attend an operator’s school, from a telemarketer who was required to meet a monthly enrollment quota or face termination.

In addition to the $30 million in consumer redress, the stipulated order requires the operator to implement a system to review all materials that lead generators use to market its schools, to investigate complaints about lead generators, and to not use or purchase leads obtained deceptively or in violation of the TSR.

The order also prohibits misrepresentations about any other benefits of any post-secondary school or any other of the defendants’ products or services.

Clear and Conspicuous Disclosures

As set forth in the settlement:

“Clear(ly) and Conspicuous(ly)” means that a required disclosure is difficult to miss (i.e., easily noticeable) and easily understandable by ordinary consumers, including in all of the following ways:

  1. In any communication that is solely visual or solely audible, the disclosure must be made through the same means through which the communication is presented.  In any communication made through both visual and audible means, such as a television advertisement, the disclosure must be presented simultaneously in both the visual and audible portions of the communication even if the representation requiring the disclosure is made in only one means.
  2. A visual disclosure, by its size, contrast, location, the length of time it appears, and other characteristics, must stand out from any accompanying text or other visual elements so that it is easily noticed, read, and understood.
  3. An audible disclosure, including by telephone or streaming video, must be delivered in a volume, speed, and cadence sufficient for ordinary consumers to easily hear and understand it.
  4. In any communication using an interactive electronic medium, such as the Internet or software, the disclosure must be unavoidable.
  5. The disclosure must use diction and syntax understandable to ordinary consumers and must appear in each language in which the representation that requires the disclosure appears.
  6. The disclosure must comply with [these] requirements in each medium through which it is received, including all electronic devices and face-to-face communications.
  7. The disclosure must not be contradicted or mitigated by, or inconsistent with, anything else in the communication.
  8. When the representation or sales practice targets a specific audience, such as children, the elderly, or the terminally ill, “ordinary consumers” includes reasonable members of that group.

See FTC Dot Com Disclosure Guidance.

Lead Vendor Compliance Monitoring

The settlement also reminds those within the lead generation ecosystem that they should ensure lead generators (including aggregators) comply with the law and use data responsibly.  Information should not be purchased from those that act irresponsibly.

The FTC expects all those in the lead generation ecosystem to, themselves, establish and ensure others do, as well, systems to monitor and review lead sources.  Such systems should include procedures sufficient to obtain information to identify each lead source (e.g., website, call center, etc.) with which a consumer interacted prior to the sale of that consumer’s information.  Such systems should also include obtaining copies of all materials created or used by lead generators, including text, graphic, video, audio, and photographs; the locations of lead sources, and the URLs of any hyperlinks contained in lead sources in lead paths.

Purchasers or leads should review all materials used to obtain such consumer information, prior to use or purchase of same, and not use/preclude payment of any amounts to lead generators for consumer information that was generated unlawfully (e.g., via misrepresentation).

Lead purchasers are also obligated to promptly and completely investigate any complaints or other information that they receive about a lead generator engaging in unlawful acts or practices.

Lead buyers, including aggregators, should design and implement procedures that ensure its  vendors comply with the law in order to mitigate liability exposure in the event that its marketing partners violate the law.  Contracts should reflect the FTC’s expectations and periodic audits should be conducted.

Takeaway:  The recent settlement focuses upon businesses that use lead data that has been extracted from consumers under false pretenses and then sold as leads.  The FTC will not permit lead purchasers to outsource illegal conduct to lead generators.  The FTC will seek to hold lead purchasers liable for the deceptive or illegal practices of their affiliates, publishers and other lead generators.  Companies that purchase leads must implement strong vendor management programs, update contracts, and know what the FTC’s standards are for “clear and conspicuous” lead generation disclosures.

Informational purposes only. Not legal advice. Previous case results do not guarantee similar future result.  Advertising Material.

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