Can websites or mobile apps that offer ranked lists of mortgage providers purportedly best suited for individual consumers violate section 8 of the Real Estate Settlement Practices Act (RESPA)? According to the Consumer Financial Protection Bureau (CFPB or Bureau) in its recent advisory opinion, these digital platforms may violate the RESPA if the platform: 1) presents one or more service providers in a non-neutral way: and 2) manipulates its inputs or formula to generate comparison options favoring higher-paying or preferred providers. Further, the CFPB opined that if the operator of the digital platform receives a higher fee for including one mortgage provider compared to what it receives for including other providers, that can be evidence of an illegal referral fee arrangement.
In a press release accompanying the advisory opinion, CFPB Director Rohit Chopra stated, “Over the last year, mortgage interest rates have increased rapidly, adding to the stress of homebuying … People often turn to purportedly objective and unbiased comparison-shopping platforms for help finding the best lender or service provider.” However, according to Director Chopra, the results produced by the platform can be “rigged.”
“In some cases, in spite of the platforms claiming to provide neutral information about what provider best suits the consumer’s needs, their interaction with a platform results in little, if any, personalization – under the guise of neutrality, they are just presented with a list of companies from which the platform operators extracted the requisite kickbacks. Other times, the platforms may preference companies they have a financial stake in without acknowledging the conflict of interest. Platforms sometimes will also simply hand off a shopper to the highest bidder — telling the shopper this company is their best option or that they are in good hands.”
As background, section 8 of the RESPA prohibits any fees or kickbacks exchanged in a transaction related to a federally related mortgage loan. The CFPB’s advisory opinion is rooted in a 1996 statement issued by the U.S. Department of Housing and Urban Development clarifying that referral fees paid to digital platforms to unfairly advantage one company over another, which could result in increased closing and settlement costs, are illegal under the RESPA. It also builds upon the CFPB’s effort to end purported bias in ostensibly neutral platforms. On March 22, 2022 the Bureau issued policy guidance on potentially illegal practices related to consumer reviews. The guidance sought to ensure that customers can write reviews, particularly ones posted online, about financial products and services that accurately reflect their opinions and experiences. The guidance highlighted that some practices, such as posting fake reviews or inserting clauses that forbid a customer from publishing an honest review, may violate the Consumer Financial Protection Act.
It is interesting that the CFPB did not also invoke UDAAP as a basis for this advisory opinion; it would seem easy for the Bureau to argue that a “rigged” comparison is deceptive to consumers, and using a UDAAP basis for the opinion would have also sent a signal to comparison sites for non-mortgage loans. Nevertheless, we continue to believe that online comparison sites are subject to criticism for conduct like that described in this advisory opinion, even if they compare non-mortgage loans. Further, creditors who advertise on those sites need to be mindful of how their products are being presented by such sites, lest the creditors themselves face regulatory scrutiny. While the CFPB’s advisory opinion on RESPA and mortgage loans does not expressly state this, we believe this is a lesson that the wider industry should take from it.