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Obama Slams the For-Profit sector over misleading Military members

Friday, April 27, 2012

President Obama will sign an executive order today that will greatly limit the For-Profit EDU sector from marketing towards military members.

The order is a result of Senator Tom Harkin’s efforts to curb the for-profit sector from getting too much money from the federal government in the form of federal student loans.

What are the main changes in this Executive Order?

  • The VA is going to be trademarking the term “GI Bill” – this will greatly limit what you can say on military specific landing pages and potentially opens up some lead generators to trademark infringement.
  • All schools must provide each prospective student information from the Consumer Financial Protection Board about the “know before your owe financial aid form.” This essentially helps students fully understand the financial implications of what they are getting into.
  • Removing recruiters from military installations.
  • Regulating online recruiting websites from potentially misleading veterans and current military members.  It is not 100% clear who will be regulating the sites though. I suspect a branch of the Department of Education will be tasked with this responsibility.  The sheer number of sites related to this topic is quite massive though.
  • Collecting data from each school about how much revenue they get from GI Bill benefits.
  • Creating a centralized complaint system for military members. If you have tried the CFPB complaint system, it is very effective and efficient.

How does this impact EDU as a sector?

  • From a sector perspective several schools are military dependent since it offsets the current 90/10 regulations. I suspect this may lead to more strategies to find students who are able to pay a larger portion of the tuition themselves.
  • Some of the for-profit stocks are already being hit today with COCO down 3%. I suspect APOL will also take a short term dip on this news.
  • The reality is that no publicly traded school has been penalized publicly for an infringement on the incentive comp rules so far. Until this happens, a lot of this news is more about suppressing the industry versus destroying it.  I also think that a lot of this news is being timed specifically around the upcoming election.

As a media buyer what do I need to know?

  • As a media buyer you may want to call your vendors who are advertising with military sites or keywords. The trademark around the GI Bill is not in effect yet, but you will need to get an inventory around what you are potentially exposed to.
  • The schools and or agencies will need to come up with an universal set of regulations around how to market to the military. This should augment the education marketing council guidelines.
  • I strongly urge you to check out the “Know before you Owe” form on the CFPB site. This gives you a much stronger idea of what the govt is requiring.

 

 

Consumer Finance Protection Bureau

On January 6th, President Obama nominated Richard Cordray as the director of the Consumer Finance Protection Bureau. The CFPB was created after 2008 under the Dodd – Frank act which is supposed to help consumers avoid another large financial crisis like in 2008.

The CFPB had largely been ineffective since that time since it didn’t have a director. With this nomination, it gives this organization much more structure and a definitive set of industries to target.

Richard Cordray has mentioned he intends to go after the mortgage industry and payday loan industry. One their website – consumerfinance.gov you can also see that they are targeting student loans.

What does all of this mean for the online marketing industry?

The first potential outcome is that this agency starts to go after advertisers who use email, display, search, etc. You may see a few companies go out of business for false advertising. EG – Saying you can get a mortgage at X percentage. This statement might be true, but without the proper disclosures of saying “available to those with tier 1 credit,” a company is implying that anyone is eligible for the mortgage.

This clearly applies to Education also. Companies who stating that you can get a high paying career if you get a degree might be under the attack from this bureau.

I can potentially see mortgage advertisers and payday loan advertisers have to add significant disclaimers to their ads which inherently ruin the click through rates. If you take a look at the pharma industry, they barely advertise since there are so many regulations around what they can and cannot say.

Personally I think mortgage and payday will continue to buy media aggressively but they may have to pay more to the affiliates and media sources to make their offers work.

Will the affiliates continue to run these offers?

Yes. There will always be affiliates who are willing to take the risk. There are also larger affiliates who are well insured and have implemented safety control procedures to stay in the vertical. If I was an advertiser,  I would be asking more questions to my affiliates/vendors about what sort of controls they have in place and if they understand the Dodd – Frank act to begin with.

Here is a link to a laymen’s version of the Dodd-Frank act. 

Here is the full act in Government speak.

What should I do if I am an affiliate?

If you are an affiliate who is in the mortgage space or payday loan space you should check with your lawyer to see if you have adequate Errors and Ommissions liability coverage.  If you need a suggestion of a person who can get you E&O insurance, please email me directly.

You should also check all your contracts to see how advertising liability may flow back to you and what jurisdiction the contract is written in.