Talkin' 'Bout Lead G-G-Generation

To some companies, the name of the game is lead generation: compiling — and selling — lists of prospective customers inclined to buy a product or service.  But marketers in that line of work should be mindful of the Federal Trade Commission Act.  If any aspect of your business touches on lead generation, two FTC cases serve as a warning to be careful about the company you keep.

One settlement involved radio and TV ads that promised easy solutions for people struggling to pay their bills:  “With one simple call you can eliminate your debt in a fraction of the time and for less than you owe.”  Did the defendants offer services to help consumers struggling with their finances?  No. They simply sold their names and phone numbers to others that referred the information to third parties, usually debt settlement businesses or law firms.

The FTC charged that the defendants deceptively claimed that they themselves provided the advertised services and that people who used the services promoted in the ads would get their debts settled, reduced or eliminated. According to the FTC, the defendants didn’t have adequate substantiation that the companies that ultimately got the leads achieved the advertised results. The stipulated order mandated $500,000 in disgorgement and an $8.5 million suspended judgment, imposed tough injunctive provisions, and banned the company president for life from any involvement in the debt relief services industry.

Another FTC case challenged similar business practices. In national ads, the defendants promised to eliminate debt “by up to 60%.”  But the FTC’s concerns extended beyond the fact that the companies simply sold leads to debt settlement providers and other lead generators or brokers who resold them.  According to the complaint, the ads featured phony testimonials from people posing as satisfied customers.  In addition, the FTC charged that statements like “The following is a public announcement . . . . If you have ten thousand dollars or more in credit card debt, a new relief program is now available. . . .” deceptively represented that the defendants' services were part of a public, non-commercial program.

The settlement in that case bans one corporate officer for life from the debt relief business and imposes a $28.2 million judgment.  The judgment will be suspended when the defendants surrender all funds in their corporate bank accounts, as well as the proceeds from real estate the officer owns in California and the Virgin Islands and his ownership interests in two overseas investment funds.

Since the financial downturn hit, the FTC has brought dozens of actions against companies falsely claiming to help people get out of debt.  In addition to the truth-in-advertising standards of the FTC Act, two additional rules mandate advertising disclosures and make it illegal for many businesses to charge upfront fees for debt settlement or mortgage assistance relief services.

These cases are among the first FTC actions to challenge the activities of lead generators, but they stand for a well-established principle:   Whether selling debt relief leads or leads for other products or services, companies must substantiate their advertising claims.

Lesley Fair is an attorney with the FTC’s Bureau of Consumer Protection.