On February 7, 2023, the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion to protect consumers from double dealing on digital mortgage comparison-shopping platforms. Companies operating these digital platforms appear to shoppers as if they provide objective lender comparisons, but may illegally refer people to only those lenders paying referral fees. When shoppers use a lender that is not the best option for their needs, they may end up with a lower quality lender or paying thousands more in closing costs or interest. The 27-page advisory opinion outlines how companies violate the Real Estate Settlement Procedures Act (RESPA) when they steer shoppers to lenders by using pay-to-play tactics rather than providing shoppers with comprehensive and objective information.
The Advisory Opinion addresses the applicability of the Real Estate Settlement Procedures Act (RESPA) Section 8 to operators of certain digital technology platforms that enable consumers to comparison shop for mortgages and other real estate settlement services, including platforms that generate potential leads for the platform participants through consumers’ interaction with the platform (Digital Mortgage Comparison-Shopping Platforms).
The Advisory Opinion:
- Describes how an operator of a Digital Mortgage Comparison-Shopping Platform violates RESPA Section 8 if the platform provides enhanced placement or otherwise steers consumers to platform participants based on compensation the platform operator receives from those participants rather than based on neutral criteria.
- States that an operator of a Digital Mortgage Comparison-Shopping Platform receives a prohibited referral fee in violation of RESPA Section 8 when:
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- The Digital Mortgage Comparison-Shopping Platform non-neutrally uses or presents information about one or more settlement service providers participating on the platform;
- That non-neutral use or presentation of information has the effect of steering the consumer to use, or otherwise affirmatively influences the selection of, those settlement service providers, thus constituting referral activity; and
- The operator receives a payment or other thing of value that is, at least in part, for that referral activity. Furthermore, if an operator of a Digital Mortgage Comparison-Shopping Platform receives a higher fee for including one settlement service provider compared to what it receives for including other settlement service providers participating on the same platform, that can be evidence of an illegal referral fee arrangement absent other facts indicating that the payment is not for enhanced placement or other form of steering.
Over the last year, mortgage interest rates have risen substantially. People looking for the best deal on mortgages or other settlement services often are turning to comparison-shopping platforms and mobile apps. Many of the websites and applications claim to offer ranked lists of providers suitable to the individual consumer’s needs. After providing their personal data to an online site to get access or run a customized search, people reasonably expect a neutral and fair presentation of the providers that may best meet their mortgage or other settlement needs.
The advisory opinion:
- Does not create any new requirements, but rather offers clarity on how firms can navigate issues associated with digital mortgage comparison-shopping platforms.
- Describes how these companies may violate RESPA, and potentially other laws, if they coerce payments from mortgage professionals, unlawfully steer consumers, or engage in other illegal referral activities, including:
- Presenting one or more service providers in a non-neutral way:The platform’s operator presents lenders based on extracted referral payments rather than the shopper’s personal data or preferences or other objective criteria. For example, the operator presents a lender as the best option because that lender pays the highest referral fee. However, the shopper is led to believe the lender was selected based on their shared personal data or preferences. In one variation, digital mortgage comparison-shopping platforms may receive payments from lenders to rotate them as the top presented option regardless of whether the highlighted lender is the best fit for the shopper.
- Biasing the platform’s internal formula to favor preferred providers:The platform’s inputs or formula are manipulated to generate comparison options favoring higher-paying or preferred providers. For example, a platform’s formula is designed to steer shoppers to use providers in which the operator has a financial stake. In this case, the shopper is unaware that the platform’s formula was potentially designed to steer them away from non-preferred providers.
Compliance Resource has scheduled a webinar entitled RESPA Section 8 – Unearned Fees and Kickback Violations for March 28.