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FTC Teaches Education Company Hard Lesson About Deceptive Lead Generation

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A for-profit higher education company recently agreed to pay $30 million to settle Federal Trade Commission charges stemming in large part from deceptive practices by third-party “lead generators.” The case is a stark reminder that advertisers cannot turn a blind eye to the marketing practices of their contractors.

Background

Since 2012, Career Education Corp. has operated several post-secondary and vocational schools, including American InterContinental University, Colorado Technical University, Briarcliff College, Harrington College of Design, Missouri College, and Sanford-Brown College, among others. Collectively, the schools enroll approximately 35,000 students, more than 90 percent of whom attend classes exclusively online.

CEC used a network of more than 70 third-party contractors to identify potential new students. These “lead generators” used various methods to identify new prospects and procure information from them. Once a solid lead was identified, the information was generally passed along to CEC’s in-house telemarketing team to follow up with the target. According to the FTC, numerous lead generators acting on behalf of CEC used deceptive tactics to identify prospects and convince them to share their contact information.

The Challenged Tactics

The FTC’s complaint against CEC cites several examples of allegedly misleading or deceptive conduct by CEC’s lead generators, including:

  • Using websites that posed as official military recruiting websites, including army.com, armyreserves.com, air-force.com, and navyenlinst.com, and using internet search engine ads that contained phrases such as “The Army Wants You!” When consumers visited the websites, they were urged to submit their information to “Contact a Recruiter” and told their information would not be shared, when in fact the information was shared with CEC for telemarketing purposes.
  • Targeting consumers looking for jobs, including through the use of fake job postings that lured consumers into submitting personal information so they could be “pre-screened” for specific jobs.
  • Using websites that fraudulently offered to help consumers apply for unemployment benefits, Medicaid coverage, or other forms of public assistance. These websites directed consumers to enter their contact information and displayed the official seals of several federal agencies, when in fact the information was being collected and used for marketing purposes.

According to the FTC, CEC had authority and control over its lead generators by virtue of its standard lead purchase agreement. Among other things, CEC’s agreements with its lead generators gave it the right to review all materials used by these contractors to generate leads. CEC was also aware that some of its lead generators were falsely representing that they were affiliated with the U.S. military.

In addition, CEC’s in-house telemarketers repeatedly called consumers whose numbers were listed on the National Do Not Call Registry, in some cases calling a single number hundreds of times, in violation of the Telemarketing Sales Rule.

Outcome

After a four year investigation, CEC agreed to settle the FTC’s charges by paying $30 million, which will be distributed to affected consumers. The settlement also requires CEC to submit to FTC compliance reporting and recordkeeping obligations for a period of 20 years.

Takeaway

This case is one of the first examples of the FTC holding an advertiser legally and financially responsible for misleading and deceptive conduct by its third-party lead generators. Advertisers that use lead generators should closely scrutinize their marketing tactics before entering into a new agreement and implement appropriate safeguards to protect themselves from potential liability.

Contacts

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