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Federal suit would take Google’s payday lending crackdown one step further

T3Leads.com
The Consumer Financial Protection Bureau last year sued T3Leads, a Burbank broker that sells consumer loan inquiries to online lenders, alleging that the sites it works with make misleading claims. A lending trade group says it plans to more closely monitor such sites.
(Jerome Adamstein / Los Angeles Times)

Type “need cash now” into a Google search and the first few results are ads from high-interest lenders or companies that refer customers to them.

That will change come July, when Google has said it will stop selling ads to payday lenders and other companies in the business of short-term or high-interest consumer loans, closing off one of the industry’s most effective avenues for finding customers.

Beneath those ads, though, are ordinary search results with links to websites such as INeedALoan.net and LocalCashNow.com that promise to connect borrowers with exactly those kinds 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 Burbank company could make it harder for those lead-generation sites to operate and may put some out of business.

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Last year, the Consumer Financial Protection Bureau sued T3Leads, a Burbank broker that sells consumer loan inquiries to online lenders, alleging that it does little to prevent the lead-generation sites it works with from making misleading claims. 

The case, which could close the loophole in Google’s new policy, is being closely watched by the industry.

“It really will have the effect of choking off lead generation in connection with short-term lending,” said Donald Putterman, an attorney who is not involved in the case but has represented lead generators.

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

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The firm has until late June to submit a formal response to the bureau’s lawsuit, which was filed in December in federal district court in Los Angeles. Ashley Vinson Crawford, an attorney for T3, declined comment.

It’s not clear how many online borrowers overall connect with lenders through lead firms, but figures from one publicly traded lender indicate it’s a big number. 

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

Online lenders are already worried over Google’s decision to no longer sell ads for short-term or high-interest loans — those that must be repaid within 60 days or that carry interest rates of 36% or higher. That will affect payday lenders, which offer small, short-term loans, as well as installment and auto-title lenders, which typically provider larger, longer-term ones.

Google sources said the policy, which goes into effect July 13, also will apply to lead-generation websites that sell consumer data to those lenders.

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

The crux of the CFPB’s lawsuit is its allegations that T3 does a poor job of policing lead-generation sites to make sure they are not making false or misleading claims.

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

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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 nearly instant transactions.

First, the information is usually sold by the lead-generation site to an aggregator like T3. Next, the aggregator auctions the information to lenders. Finally, the borrower is automatically redirected to the website of whichever lender won the auction.

The CFPB alleges that the process can result in consumers being tricked into taking out loans from lenders that charge the highest interest because often they are the highest bidders for the lead. 

Many lead-generation sites viewed by The Times tout benefits of payday loans that are fairly innocuous, such as that most lenders do not do a credit check and that borrowers can get money deposited into their bank account in a day or less.

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

For instance, NeedCashNow1hr.com,  which pops up in a search for “need cash now,” claims that high-interest loans can be “much cheaper than traditional bank loans.”

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

The one real address – buried  in a privacy policy document linked last week from its loan application page -- is a Toluca Lake post office box -listed by more than a dozen lead-generation sites affiliated with T3.

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Aaron Rieke of the consulting firm Upturn, which last year issued a report critical of the lead-generation business, said this is all fairly ordinary.

“This site looks a lot like a number of other payday loan lead sites,” he said. “They have addresses that seem dubious; there are typos. It doesn’t surprise me that the email address and phone number don’t work.”

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

“If lead providers or marketing affiliates do not comply with an increasing number of applicable laws and regulations … it could adversely affect our business,” the company said in its annual report to the Securities and Exchange Commission. 

Putterman said that 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. Lead firms often sponsor events put on by the trade group Online Lenders Alliance, and those firms’ executives are big supporters of the trade group’s political action committee. 

But he thinks T3 has several lines of defense, including an argument that the CFPB does not have jurisdiction over lead-generation firms since they only market and do not make loans.

Or it could argue that claims made by lead generators about “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 beer the freshest.

Rieke of Upturn said he doesn’t believe a CFPB win over T3 would put lead generators or aggregators out of business.

Instead, he said, it would simply force T3 to do a better job of monitoring the sites it buys leads from. That would add costs for T3 and other aggregators, he said, but not kill the industry.

“I would hope one of the things that comes out of this case is that lead-aggregation companies suddenly have an incentive to do compliance work,” he said. “One might hope you wouldn’t see such outrageous claims anymore.”

james.koren@latimes.com

Twitter: @jrkoren

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