Jonathan Foxx
President & Managing Director
Generating
leads is an important way to reach consumers. It is also fraught with
regulatory risk. A lead is consumer information that signals consumer interest
or inquiry into products or services offered by a business, such as residential
mortgage lenders and originators. There are several factors to be considered,
not just licensing. I will list some rudimentary guidelines in this article,
specifically with respect to contact with the consumer. Caution is urged to
consult with a risk management professional to ensure compliance with federal
and state guidelines required by a marketing campaign to generate leads.
Although my focus is primarily on the online lead generation process, virtually
all the guidelines provided herein may be extrapolated for use in offline lead
generation campaigns.
My
firm often is requested by clients to vet a lead generator, which I will call a
Lead Generation Company. Careful risk management advice should be considered
when developing and managing leads, whether obtained from an outsourced entity
or a loan originator’s own website, in-house, or through online lead generation
advertisements. Certainly, any loan originator that uses leads must have an internal
compliance function that accounts for proper licensing of the Lead Generation
Company (where required), monitoring of the data integrity derived therefrom,
testing conformance with the originator’s policies, and training of staff in
the appropriate use of lead generated, consumer data.
Banking
departments these days are not just looking at licensing qua licensing. They are looking for loan originator compensation violations
that are triggered by lead generation. For instance, they know that loans may
have different cost structures depending on how the loans were initially
received by the lender. A lead generated by the loan originator may be
compensated differently than those generated by the creditor. As long as this
doesn’t constitute a proxy for a loan term or condition, it is generally acceptable;
that is, the loan officer may also be reimbursed for lead generation and other
legitimate business costs, but the creditor must beware of how this may serve
as a proxy for terms and conditions. It is up to the lender to make this
determination (and properly document it).
Four
Rules
In
any lead generating marketing, the following four rules should be implemented:
1. Complete,
accessible, and straightforward disclosure of all parties’ intent regarding
data collection and usage is essential;
2.
Data
should not be brokered or sold without consent (or notice and choice) of all
parties involved, including the consumer and the loan originator;
3.
Both
the consumer, Lead Generation Company, and the loan originator should be made
aware, through clear notices, of all parties involved in data collection and
sharing; and,
4.
All
parties should be educated and aware of current regulations regarding consumer
protection and privacy.
These
four rules become the bases of the policies, procedures, contractual
arrangements, and protocols that ensure a viable marketing campaign that
relies, in whole or in part, on lead generation.
Regulatory
Focus
The
regulators involved in enforcement of compliance with lead generation rules
include, but are not limited to, state banking departments, state Attorneys
General, the Federal Trade Commission (“FTC”),[i]
and the Consumer Financial Protection Bureau (“Bureau”). We already know that
the Bureau examines for whether the lead generator is a third-party provider
and reviews the terms and appropriateness of the relationship. The Bureau
reviews advertisements and advertising sources. It will review TV, radio, print
media, Internet, scripts, recordings, and so forth. It will determine if there
was proper consumer disclosure all along the way, from point of contact with
the consumer to point of contact with the lender, including any intimation of
fees and other terms and conditions. Plus, a review is conducted for online
data security and sharing of consumer information.
Although
the new loan originator qualification standards do not impose licensing
requirements, every lender must ensure that each loan originator in its employ
is licensed and registered in compliance with laws related to Secure and Fair
Enforcement for Mortgage Licensing Act (SAFE), if applicable. Further, entities
engaged in lead generation and marketing activities, as well as the companies
that do business with such entities, need to pay particular attention to their
activities to ensure that they do not inadvertently engage in loan originator
activity. If they do, they’ll need to make sure that they meet the new loan
originator qualification standards, including licensing requirements. Failure
to meet these standards will give rise to severe civil liability that could
impair the collectability of the loan.
The
Bureau has stated that anytime a consumer gives out sensitive personal and
financial information on the Internet there are risks involved to the consumer.
In the context of Pay Day Loans, for instance, the Bureau has already warned
consumers that if a consumer applies for a loan online, the consumer could be
increasing risk significantly.
The
Bureau has expressed concern that an online application or form that consumers
fill out could be sold to a loan originator that offers to originate a loan on
behalf of the consumer. Indeed, the Bureau also has indicated it has concerns
that multiple lenders or other settlement service providers could pay for this
information, thereby causing them to contact or email the consumer.
Consumer
Advocacy
In
a November 11, 2013 announcement to consumers, the Bureau stated, “Lead
generators might not find you the lowest cost loans, and you should be cautious
of sites that promise they will. Many consumers can also be confused about who
actually made the loan, which makes getting help when you need it harder.”[ii]
In addition, the Bureau has provided caution regarding key words, tags, and
tactics.
Importantly,
the Bureau’s view toward the Pay Day lead generator should be applied to residential
mortgage lenders and originators that purchase leads from a Lead Generation
company. Here’s the point: the Bureau has clearly issued an answer to the
question, "What is the difference between an online payday lender and one
with a storefront?" Its answer was that consumers need to make sure the
online website is licensed to do business in the consumer's state and whether
the lead generator follows the state's [payday] lending laws. Consider it a
warning to all residential loan originators!
Therefore,
when the Bureau starts looking at online lead generation involving residential
mortgage loans, it is somewhat certain that it applies an even stricter
standard to the Lead Generation Company that solicits mortgage information or a
mortgage conversation from consumers and sells it or even passes it on to a loan
originator. Questions that the Bureau would resolve, either by promulgating
rules or through enforcement action, will likely be: (1) Is the Lead Generation
Company violating the SAFE Act if it is not licensed in the state it is
operating in?, and (2) If it is licensed under SAFE will it be violating the
broadly defined Loan Officer Compensation Rule?
Lead
Generation as Advertising
Depending
on the advertising used to find a consumer for a loan originator, the Bureau
may deem the communication to be an advertisement to generate a lead by using
certain phrases, such as “Let us help you find a mortgage! Call us! Or Click Here
for More Information!” If deemed an advertisement, the Bureau will move to the
view that such advertising is a solicitation for a mortgage conversation from a
consumer. The outcome of that position would likely lead to a violation of
SAFE, because most states consider such a solicitation a violation of SAFE even
if no payment is made by the lender or loan officer to the Lead Generation Company
- because this type of solicitation would trigger a license requirement.
Even
if the Lead Generation Company is properly licensed under a particular state's
SAFE Act, if it sells that lead to an unlicensed loan originator in that state
the Bureau could pursue an action against the Lead Generation Company because it
assisted or facilitated a consumer’s information to be sold to an unlicensed
entity, pursuant to various third party vendor management bulletins.
Some
states already require a Lead Generation Company collecting consumer information
to be licensed as "mortgage brokers" such as Arizona and Virginia. The
licensing requirement varies from state to state. Referencing Pay Day lenders,
most of the Pay Day lenders in Ohio, for example, have become Mortgage Brokers
under the SAFE Act as it takes them out of the state usury statute for Pay Day
lenders.
Three
Concerns
What
type of online Lead Generation Company could cause issues of concern?
(1)
Unlicensed Lead Generation Company that tells consumers, for instance, whether
they are "Qualified for a Loan or Not";
(2)
Online Lead Generation Company that collects any sort of non-public personal
information data (the definition of what is “NPI” may vary from state to state,
but is also federally settled in Gramm-Leach-Bliley, et alia) and fails to inform and obtain the consumers consent that
their information will be shared with a third party; and,
(3)
Online Lead Generation Company where it has spoken directly with the consumer
and then transfers the "Live Handoff" over to the loan originator
(especially if the Lead Generation Company is not licensed, where required by
state law). If the Lead Generation company acts as a special kind of mortgage
broker then it may be best to stay away because this could violate the standards
associated with the Loan Officer Qualifying Rule, mentioned above, which became
effective on January 1, 2014.
Additionally,
please note that the Bureau has broad authority to enforce Fair Lending Laws, the
Telemarketing Sales Rule, Mortgage Lending and Regulations, Mortgage Acts and
Practices Advertising Rule, and most certainly Unfair, Deceptive and Abusive
Acts or Practices (UDAAP).[iii]
