The CFPB (Consumer Financial Protection Bureau) recently issued an Advisory Opinion on Digital Mortgage Comparison Shopping Platforms and the potential for RESPA Section 8 issues. At issue are the ways in which these platforms may favor one lender or another when displaying search results to consumers searching for mortgages and real estate settlement services.
RESPA has been in effect for nearly fifty years. One of the reasons for initial enactment of RESPA was concern over costly settlement service costs. The CFPB noted that kickbacks for the referral of settlement services were a common practice at that time and payments for referrals of settlement services was cited a factor in causing excessive settlement costs. Congress attempted to reduce these costs through the prohibitions in RESPA, and largely succeeded.
One of the prohibitions in RESPA Section 8, today found in Regulation X at 12 CFR § 1024.14, is the prohibition against any fees, kickbacks, or things of value for referring settlement services in connection with a federally related mortgage loan. This has become a concern in relation to “Digital Mortgage Comparison Shopping Platforms” (online marketplaces) which allow consumers to search for and compare options for mortgages or other settlement services, which in turn create potential leads for the providers that participate in the platform’s services.
According to the CFPB, the proper functioning of one these online marketplaces is when regardless of whether the lenders and service providers are paying to be listed (advertising) with the platform, when a consumer enters their data and searches for results, the results are displayed in a neutral way, not preferring one service provider over another, unless the consumer’s choices limit or filter the way in which search results are displayed. For example, if the consumer is searching by geographic area, it is not a problem to limit providers by the search area indicated by the consumer.
What the CFPB is focusing on in this advisory opinion is when online marketplaces appear to consumers as if they provide objective comparisons between lenders and settlement service providers but are actually displaying results influenced by the fees paid by the lenders or providers. This could either take the form of some lenders paying one rate and other lenders paying another rate (with the higher presumed to be for enhanced placement), or some lenders not paying for advertising and other lenders paying for advertising. While the advisory opinion focuses on the operator of the online marketplace, RESPA works both ways (paying or receiving) so if the operator is violating RESPA in receiving payment for these referrals, the bank could easily also be found to be in violation by virtue of making the payments.
The bank must be highly aware that when paying for “advertising space” such as a listing with an online marketplace that the payments can only be for “neutral” placement on the website. To the extent that the payment is for non-neutral placement, that can constitute “referral activity,” and so if even PART of the payment is interpreted as attributable to the “enhanced placement,” that can be at least a RESPA Section 8 violation – to the platform operator and/or the bank, if not also a UDAAP concern.
The RESPA Section 8 minefield can be difficult to traverse, so don’t hesitate to reach out to us on the hotline for help understanding this advisory opinion or for help with your RESPA-related advertising questions.