Payday Bar Association New Orleans – 11/5/09

1. Payday Bar AssociationNew Orleans – 11/5/09 Richard P. Eckman, Partner Presented by:

2. Anatomy of a Lead Generator • A lead generator or loan aggregator is a conduit between publishers of information and advertisers. • Publishers include websites that advertise products and services through the use of banner ads, pop-ups, emails or text messages. • Advertisers sponsor banner ads and provide the products and services advertised. • A payday lender is an example of an advertiser.

3. Anatomy of a Lead Generator (cont’d) • Lead generators are paid based on a per lead, per impression or per action basis. • For example, a lead generator could charge a fee every time a consumer clicks on a banner ad that provides a link to an advertiser’s website. This is an example of a per impression type of fee. • Lead generators can track payments owed through the use of tracking pixels placed on web properties.

4. Anatomy of a Lead Generator (cont’d) • Variations include collecting names of consumers that are interested in a particular product such as a payday loan using pop-up ads, email invitations, or search engine hits. • A lead generator may actually obtain a consumer’s name, email address and checking account information through this process.

5. Anatomy of a Lead Generator (cont’d) • Once the consumer is exposed to the invitation, they are directed to a website owned by the lead generator called a “landing page”. • The landing page requires a consumer to: • agree to the privacy policy of the lead generator • confirm their interest in having their data sent to a lender • fill out a generic loan form that asks for certain information about the consumer • The first touch of the consumer is by the publisher, not the lead generator.

6. Anatomy of a Lead Generator (cont’d) The lead generator qualifies the lead by: making sure all information provided by the consumer is complete checks whether the consumer has made multiple inquiries checks for fraud, i.e. fraud rings, fraudulent IP addresses, etc. Logic checks, i.e. address, city, state and USPS deliverability standards Lead generators can have hundreds of landing pages. At this point, the lead generator accepts or rejects the lead.

7. Anatomy of a Lead Generator (cont’d) • Once accepted, the consumer is automatically directed to the lender’s website. • Lender is identified by a site brand and lender asks for additional information. • For marketing reasons, the transition to a lender’s website is often a seemless experience. • Consumer completes the application, is provided with the appropriate disclosures, and closes the transaction.

8. State Regulation of Lead Generators • Eleven states require brokers of payday loans that “broker”, “arrange” or “facilitate” the origination of a payday loan to be licensed or registered with a state: Alaska, Arizona, California, Colorado, Idaho, Illinois, Maine, Montana, Oregon, Rhode Island, North Carolina • Alaska, Arizona and California laws apply only to deferred deposits of checks and therefore by their terms do not apply to internet payday loans.

9. State Regulation of Lead Generators (cont’d) • Colorado law applies to deferred deposit or an authorization to transfer funds signed by the consumer. • Montana law applies to loans that include written authorizations for a consumer to electronically deduct money from a consumer’s account on a specific date for the loan and fees. • In North Carolina, a loan broker is required to register with the Secretary of State and provide state specific disclosures.

10. Brokering Prohibited • 15 states and the District of Columbia prohibit payday loans: Arkansas, Connecticut, Georgia, Maryland, Massachusetts, Michigan, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Texas, Vermont, Virginia, West Virginia and District of Columbia • 6 states impose criminal penalties for assisting in the making of a non-compliant loan: District of Columbia, Georgia, Texas, Ohio, Pennsylvania and Virginia

11. Brokering Prohibited (cont’d) • Unclear whether a lead generator is a broker, arranger or facilitator. • Most lead generators do not comply with state laws in this area. View themselves as “finders”. • Lack of regulatory action • Lack of litigation • Questionable application of laws • Industry as a whole does not register • Since lead generators do not know the legal residence of the borrower, the holding in Pioneer Military Lending v. Manning, 2 F.3rd 280 (8th Cir. 1993) may be applicable.

12. Federal Statutory Requirements • Fair Credit Reporting Act • Is the information collected enough to be a “consumer report”? • Limited actions by lead generator may not make information collected a consumer report. • Possible “joint user” exception.

13. Federal Statutory Requirements (cont’d) • GLBA • Title V of Gramm Leach Bliley Act (GLBA) • Is a lead generator a “financial institution”? • If a lead generator is an entity that is “significantly engaged” in any activity that the FRB has determined meets the “closely related” or “financial in nature” test, it is an entity subject to the Title V requirements. • Providing data processing services, data storage or data transmission and acting as a finder may apply. • Customer relationship or consumer relationship. • If customer relationship, greater responsibilities. • Appears that most lead generators do not have customer relationships.

14. Federal Statutory Requirements (cont’d) • Responsibilities limited to providing short form privacy policy, right to opt out of providing non-public financial information to third parties. • Under the “isolated transaction rule”, lead generators do not need to wait the 30 days for the opt out. • Under the data security “safeguard rule”, lead generators must meet certain technical safeguard requirements for information security.

15. Federal Statutory Requirements (cont’d) • Federal Can Spam requirements • State privacy rules • State data security statutes (California and New York)

16. Federal Statutory Requirements (cont’d) • Can Spam • Applies to email messages whose primary purpose is the advertisement or promotion of a commercial product or service. • Header information cannot be material, false or misleading. • Must identify the person sending the message. • Re: lines must accurately reflect the content of the message.

17. Can Spam (cont’d) • Recipients must be allowed to opt out of future mailings – implemented within 10 business days after receipt of consumer request to opt out. • Reply or opt out must be clearly and conspicuously displayed and capable of returning emails for at least 30 days after the original email is sent. • Emails must be clearly and conspicuously labeled as advertisements or solicitations. • Must include a valid physical postal address of the sender in the opt out notice.

18. State Privacy Laws • California SB-27 requires certain businesses to disclose their information sharing practices with their customers who request such information. • Data Security and Notification of Security Breach Statutes: • California • New York

19. For more information, visit www.pepperlaw.com