LEGAL ISSUES IN LEAD GENERATION November 1, 2012 Sonoma, California Jeremy T. Rosenblum, Practice Leader Consumer Financial Services Group Copyright 2012 by Ballard Spahr LLP

Affected companies This session applies to a variety of companies: -Pure lead generators (LGs). -Lenders who sell leads they can’t or don’t want to use themselves. -Lead purchasers.

The first elephant in the room: Use of LG services to facilitate illegal loans Many if not most lenders purchasing leads from LGs have adopted a version of the choice of law model. In our view, most choice of law lending violates state law. LGs accordingly have exposure under aiding and abetting, conspiracy and similar theories. Potentially, the CFPB could assert that systemic violation of state law (or facilitating systemic violation of state law) is “unfair” or “deceptive” and accordingly violates federal UDAAP laws.

The second elephant in the room: ECOA/FCRA We are not aware of a single lead generation program where consumers receive adverse action notices. Failure to address adverse action notice requirements gives the CFPB enormous leverage over LGs and lenders using their services. If a web site does not include a good arbitration agreement in its terms of use, LGs and their lenders are also exposed to class action lawsuits.

Ideas for ECOA/FCRA compliance It is difficult to see how LGs and lenders can fully comply with ECOA and FCRA adverse action notice requirements (and doubtful that full compliance would be desirable to consumers). It may be possible for LGs and/or lenders to substantially comply: -LGs could obtain consumer consent to receive notices online or by . Lenders could then give electronic adverse action notices, if they wish. Lenders could also structure their deals with LGs to limit the circumstances where notices are required. -LGs could advise consumers of the principal reasons their lenders did not offer credit.

Addressing UDAAP issues through recommended web site terms and disclosures We recommend that LGs make the affirmative disclosures or include the terms of use set forth on the following three slides. The LG, as the operator of the website, is not a lender. Instead of directly making a loan to the consumer, the LG will submit the consumer's loan application to its network of lenders. The LG will not necessarily match the consumer with the lender that provides the best rates and terms. Consumers should consider options other than payday loans for their long-term financial needs.

Further recommended disclosures It is possible that no lender will offer credit (or offer credit in the desired amount or on desired terms) Many lenders will have access to application information. The consumer may need to fax information to the potential lender matched with the consumer.

Further recommendations We also recommend that LGs: -Provide the consumer with an effective mechanism to register complaints about his or her experience with the LG, its web site and any lender matched with the consumer. (Complaints can then be used to redress consumer harm and screen out “bad” lead purchasers.) -And, of course, ensure to the extent possible that all disclosures to consumers are true and correct in all respects and in all circumstances, and that any qualifications on affirmative statements are made in a clear and conspicuous manner.

Disclosures/statements to avoid Don't make any explicit or implied promise that can't be kept. For example: -Don't promise all applicants a loan (or a loan in a particular amount). -Don't promise same-day or even next-day funding. -Don't promise "best" rates. -Don't quote rates or fees, the number of payments or the period of repayment for loans that may be available without providing the additional disclosures required by Regulation Z.

And a few final admonitions... -Don't flatly represent that credit checks are not required or that using the LG’s services can improve credit scores. -Don't vouch for the trustworthiness or other characteristics of lenders in the LG's network (e.g., dozens of "trusted" lenders). -Limit use of "up to" language (e.g., loans "up to" $1,000) to situations where a substantial percentage of consumers can qualify for the maximum amount (or provide clear and conspicuous disclosure of relevant qualifying information). -Exercise caution in using strong terms, such as "perfect," "always," "all," "risk-free," "completely," "instant" or "highest- level."