Federal lawsuit would take Google payday loan crackdown one step further

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Last year, the Consumer Financial Protection Bureau sued T3Leads, a Burbank, Calif., Broker who sells consumer loan applications to lenders online, alleging it is doing little to prevent lead generation sites with whom he works to make misleading statements. (Jerome Adamstein / Los Angeles Times / TNS)

LOS ANGELES – Type “need money now” into a Google search and the top results are ads from high interest lenders or companies that refer customers to them.

That will change in July, when Google announced that it would stop selling ads to payday lenders and other companies specializing in short-term or high-interest consumer loans, shutting down one of the most popular avenues. most efficient companies in finding clients.

Underneath these ads, however, are ordinary search results with links to websites such as INeedALoan.net and LocalCashNow.com that promise to put borrowers in touch with exactly these types of loans. And those results will remain even after Google’s new policy takes effect.

But a lawsuit filed by a federal watchdog against an obscure Los Angeles-area company could make it harder for these lead generation sites to operate and could bankrupt some.

Last year, the Consumer Financial Protection Bureau sued T3Leads, a broker that sells consumer loan applications to lenders online, alleging it is doing little to stop the lead generation sites it works with from doing so. misleading statements.

The case, which could fill a gap in Google’s new policy, is being followed closely by the industry.

“This will really stifle lead generation on short-term loans,” said Donald Putterman, a lawyer who is not involved in the case but has represented lead generators.

He expects an aggressive defense from T3, calling the CFPB’s prosecution a “test case”.

The company has until the end of June to submit a formal response to the office’s lawsuit, which was filed in December in federal district court in Los Angeles. T3 attorney Ashley Vinson Crawford declined to comment.

It’s unclear how many online borrowers globally connect with lenders through leading companies, but figures from one publicly traded lender indicate a large number.

Enova International of Chicago, which offers payday loans and other financial products exclusively online through brands such as CashNetUSA and NetCredit, reported that 48% of its loans last year went to customers who came to the business through lead generators or other indirect marketing sources.

Online lenders are already worried about Google’s decision to no longer sell ads for short-term or high-interest loans – those that have to be paid off within 60 days or carry interest rates of 36 days. % or more. This will affect payday lenders, who offer small, short-term loans, as well as installment and automatic lenders, who typically offer larger, longer-term loans.

Google sources said the policy, which takes effect July 13, will also apply to lead generation websites that sell consumer data to these lenders.

But many lead generators don’t buy ads, instead rely on their sites to show up in search results, which is why the T3 case is so important.

The heart of the CFPB lawsuit lies in its allegations that T3 does a poor job of monitoring lead generation sites to ensure that they are not making false or misleading claims.

“T3Leads has steered consumers into bad deals,” CFPB director Richard Cordray said in a statement. “If you engage in this type of conduct, you risk the consequences of harming people. “

On the typical lead generation site, borrowers fill out an application, providing names, addresses, and even social security and bank account numbers. Once borrowers click submit, it triggers a series of almost instant transactions.

First, the information is usually sold by the lead generation site to an aggregator such as T3. Then the aggregator sells the information to the lenders. Finally, the borrower is automatically redirected to the website of the lender who won the auction.

The CFPB alleges that the process may cause consumers to take out loans from lenders who charge the highest interest, as they are often the highest bidder for the lead.

Many lead generation sites seen by the Los Angeles Times tout the benefits of payday loans which are quite harmless, such as that most lenders don’t do credit checks and borrowers can deposit money on them. their bank account in a day or less.

But others make promises that sound too good to be true and provide false, outdated, or unusable contact information.

For example, NeedCashNow1hr.com, which appears in a search for “need money now”, claims that high interest loans can be “much cheaper than traditional bank loans”.

The site lists a non-existent mailing address, an email address that doesn’t work, and a phone number that goes unanswered. The website is registered at an address in Novocherkassk, a city in southwestern Russia. The registrant did not respond to a request for comment.

The only real address – buried in a privacy policy document linked to its loan application page last month – is a Los Angeles post office box listed by more than a dozen T3 affiliate lead generation sites.

Aaron Rieke of consulting firm Upturn, which published a critical report on lead generation activity last year, said it was all pretty ordinary.

“This site is very similar to a number of other payday loan sites,” he said. “They have addresses that seem questionable; there are typos. It doesn’t surprise me that the email address and phone number are not working.

Enova noted the CFPB’s lawsuit against T3 as a potential risk factor.

“If major vendors or affiliates of marketing fail to comply with a growing number of applicable laws and regulations … it could harm our business,” the company said in its annual report to the Securities and Exchange Commission.

Putterman said if the CFPB lawsuit is successful, it could shut down much of the lead generation business, which has become an influential part of the online lending industry. Leading companies often sponsor events organized by the Online Lenders Alliance professional group, and the leaders of these companies are strong supporters of the professional group’s political action committee.

But he believes T3 has several lines of defense, including an argument that the CFPB lacks jurisdiction over lead generation companies since they only market and don’t make loans.

Or he could argue that claims made by lead generators about the “best rates” or “lowest fees” – which the CFPB says are misleading – should be protected by the same principle that allows Best Foods to call its mayonnaise the best or Coors to call its the freshest beer.

Rieke of Upturn said he doesn’t think a CFPB win over T3 would bankrupt lead generators or aggregators.

Instead, he said, it would simply force T3 to better monitor the sites it is buying leads from. This would increase costs for T3 and other aggregators, he said, but not kill the industry.

“Hopefully one of the things that comes out of this case is that lead aggregation companies are suddenly pressured into doing compliance work,” he said. “One would hope you wouldn’t see such outrageous claims again.”

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© 2016 Los Angeles Times

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