Lead Generation Leads to FTC Settlement

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There is nothing particularly new about the idea of lead generation in marketing. Companies have from the very beginning paid their own employees or paid others to help find prospects for their goods and services. However, in today’s digital world and with the myriad different ways in which consumer information is gathered, the use of third parties for lead generation has proliferated. Not surprisingly, so has the abuse of lead generation efforts.

The Federal Trade Commission (FTC) has brought several complaints against lead generators that have used, shall we say, less than forthright promises and claims in an effort to bolster the number of leads they generate. In turn, the FTC has cautioned companies that the use of lead generators is no different than the use of other third parties such as ad agencies or influencers to assist with marketing, and that advertisers bear some responsibility for the oversight of such entities as well as discipline if and when those entities engage in unlawful practices.

This week the FTC made that point more clearly as it brought what we believe is the first case against a company that allegedly failed to exercise adequate oversight of the third-party lead generators it contracted with. The FTC entered into a consent order, including payment of $30 million in consumer redress, with Career Education Corp., an operator of postsecondary and vocational schools. The FTC alleged that several of the lead generators used by the company misled consumers into thinking (1) that the schools were affiliated with or recommended by the military or (2) that consumers were providing their contact information for jobs or benefits assistance, as well as misleading consumers about the extent to which their personal information would be shared and calling individuals on the Do Not Call Registry. Further, at least three of the lead generators accused of engaging in such practices had previously been the subject of FTC enforcement actions, never a good sign when considering a vendor.

Perhaps of greatest interest, the FTC’s consent order provides a bit of a road map in terms of oversight of third party lead generators. The order requires the company to (1) review all materials used to generate leads, including any hyperlinks contained in such materials; (2) refuse payment to any lead generator for any leads resulting from misleading information; and (3) promptly investigate any complaints or other information suggesting that a lead generator is engaging in misrepresentations and refuse payment if the investigation finds that misrepresentations have occurred. So once again the FTC has reaffirmed its position that turning a blind eye to what third parties may be doing on your behalf is typically not the best compliance strategy.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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