Yesterday’s Financial Times has an important story which should trigger an investigation into how the online marketing industry has faciliatated the selling of subprime mortgages and other credit. The online ad industry–including search engines and publishers–have to begin to act more responsibly. It’s time for real public policies by the FTC and Congress to protect consumers. Here’s an excerpt from Richard Waters FT piece:
“Internet companies are bracing for a possible fall-off in one of their biggest sources of advertising following the meltdown in the subprime mortgage market…Pricing could also be hurt more broadly on some classes of advertising on web search engines, because fewer advertisers are expected to be competing in the advertising auctions run by companies such as Google to have their messages displayed next to specific keywords.
“A lot of the subprime [advertising] has gone away,” said David Jakubowski, general manager of Microsoft’s MSN service.
This loss had yet to have a broader effect in the search business, he added…
Many online companies depend for a disproportionate amount of their income on financial services advertising, with subprime in some cases accounting for a large part of it.
Sixteen per cent of all online advertising comes from financial services companies, making it the second biggest source of advertising behind the retailing sector…
Companies that lent to subprime borrowers relied heavily on the internet to attract customers, concentrating the effect of the meltdown…According to data from Nielsen/NetRatings, mortgage lenders Countrywide and Low Rate Source were two of the 10 biggest online advertisers in the US in July.”
Take a look as well at this very interesting ZDNet Aug. 16th online column by Dan Farber and Larry Dignan (excerpt):
The top spender on advertising is a mortgage referral company Low Rate Source (woops). The third ranked company is credit rating firm Experian (may actually do better because if your credit rating isn’t pristine you’re not getting a mortgage). And the fourth ranked advertiser was Countrywide Financial, which just tapped its credit line because mortgage liquidity is drying up. Countrywide is a lock to cut spending and its online advertising budget. And you can’t peruse Yahoo Finance or Google Finance without getting a mortgage pitch somewhere.
InterActive Corp. is the fifth ranked advertiser and it’s a safe to bet that some of that advertising directs folks to LendingTree, which also refers folks to lenders…Meanwhile, there are a lot of keywords being bought by those aforementioned companies. Watch the language from Google, Microsoft or Yahoo to monitor the fallout.”
And when Congress, the FTC or state attorneys-general begin investigating, it may be useful to consider this, courtesy of MediaPost’s Marketing Daily:
“A recent article by Patricia A. McCoy in the Harvard Journal on Legislation, titled “Rethinking Disclosure in a World of Risk-Based Pricing,” found that “numerous subprime ads are tantamount to affirmative misrepresentations.”
Specifically, McCoy found two main areas of advertising deception under the terms of the Truth in Lending Act. First, “TILA allows sub-prime lenders to tout their best rates, without disclaimers and regardless of the fact that numerous sub-prime customers will not qualify for those rates.” Second, TILA also “permits lenders to dangle alluring teaser rates before consumers without notifying them how high their interest rates might go following rate reset.”
In effect, she adds, this means that “sub-prime lenders can entice customers with rosy prices that are not available to weaker borrowers, hike the price after customers pay a hefty application fee, then raise the price again at closing.”