As an auto lender, you’re likely aware of the due diligence required when purchasing consumer leads. Lenders must exercise the same diligence when referring — or selling — declined leads downstream.
Purchasing customer leads via referral programs has adapted as technology has allowed online lenders to communicate instantaneously with potential customers. Due to the nature of the online marketplace, lenders often are inundated with leads on consumers who fail to meet their underwriting standards. Many online lenders have entered into referral arrangements to sell declined leads to lending partners or online marketplaces.
To purchase leads, lenders commonly embed a “Get Financing” widget on partnering dealer marketplace websites that gathers consumer information relevant to financing options. The consumer will input basic personal information — a generated lead — that is sold to the finance company or will click a link in the widget that takes him to a credit application on the lender’s landing page.
State and federal authorities regulate the purchase of customer leads, but the Federal Trade Commission has a particular interest in the lead generation process. Regulators have made clear that lead buyers must conduct due diligence and actively ensure that lead generators follow the law. This includes, but is not limited to:
- Monitoring lead providers for deceptive advertisements;
- Ensuring lead providers clearly and conspicuously disclose their identities and what they will do with consumers’ personally identifiable information (PII);
- Confirming lead providers comply with state laws, including any licensing requirements;
- Complying with other applicable federal laws, such as the Telephone Consumer Protection Act and CAN-SPAM Act.
To sell or refer a lead, lenders may include a button on the “Decline Page” that allows the consumer to consent to referral to another lender. The level of due diligence required by lenders who sell or refer declined consumer leads depends on the type of referral program. Simply providing the consumer with a hyperlink or contact information for a lending partner is generally considered less risky than transmitting the consumer’s PII to a third party.
Regardless of the referral process, before lenders sell leads, they must conduct “reverse due diligence” on the companies buying them. Specifically, lenders should ensure that lead buyers hold all proper state lending licenses and that they can actually extend credit at the rates and terms advertised. Because lenders could be held responsible if the leads are eventually sold further downstream to bad actors, they should consider contractual provisions with their partners that prohibit the resale of leads. In addition, prior to selling declined leads, lenders should consider updating their privacy policy to address potential information sharing.
The failure to undertake the necessary steps prior to entering into a referral program may subject lenders to regulatory claims, create reputational risk, and damage successful customer acquisition strategies.
Dustin Alonzo is an attorney advising clients nationwide on compliance with state and federal laws governing consumer financial products. He can be reached at (504) 596-2782 or dalonzo@mcglinchey.com. McGlinchey Stafford is the Compliance Partner of Auto Finance Excellence (AutoFinanceExcellence.org), a sister service of Auto Finance News.
