CFPB's RESPA Advisory Addresses Online Mortgage-Comparison Platforms

The Consumer Financial Protection Bureau (CFPB) issued guidance yesterday making clear that those who operate or participate in online mortgage-comparison shopping platforms will be closely scrutinized for compliance with the prohibition on payments for referrals to mortgage lenders. “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,” the agency said. Here’s what you need to know:

What happened?

The CFPB issued an Advisory Opinion on how the Real Estate Settlement Procedures Act (RESPA) applies to online mortgage-comparison platforms. The agency said platform operators violate RESPA “when they steer shoppers to lenders by using pay-to-play tactics rather than providing shoppers with comprehensive and objective information.” Specifically, the agency said operators receive a prohibited referral fee when they use or present information in a way that steers consumers to mortgage lenders in exchange for a payment or something else of value.

What does the advisory opinion cover?

The opinion mainly covers consumer-facing websites or apps that let people search for and compare options for mortgages or other settlement services.

Consumers usually provide contact info and other details that are part of a mortgage application. The platforms display options from various lenders. They generate leads for lenders and settlement providers by directing consumers to a provider’s website, selling the consumer’s contact info or both. Some also advertise to consumers.

The importance of a neutral presentation and similar fees

In its opinion, the CFPB relied on a 1996 federal policy statement stressing the importance of:

• Presenting neutral information about participating providers (with an exception for ranking lenders on objective factors relevant to the borrower’s choice).
• Charging similar fees to participating providers.

The absence of these features could present risk that payments were made for steering consumers to providers paying the highest fees.

10 things companies should know about the CFPB’s advisory opinion

The opinion represents the CFPB’s first significant guidance on the relevant RESPA section since Rohit Chopra became director in 2021. It likely reflects renewed interest in a prohibition that often becomes more important when mortgage application volumes decline. Here are 10 things companies should know about the opinion:

1. Non-neutral presentations constitutes a referral

RESPA prohibits payments under an agreement for referrals of settlement-service business.The CFPB says digital platform operators make a referral when they “non-neutrally” use or present information that steers a consumer to a settlement service provider or otherwise influences the consumer’s selection.

2. Disclosure isn’t enough

Some platforms disclose how they use and present information. The opinion says “a disclosure would not, absent other facts, turn a directed action that has the effect of affirmatively influencing into one that does not.”

3. Referrals are directed to people - and that can encompass more than consumers

The applicable regulation defines a referral as an “oral or written action directed to a person.” That includes consumers, the opinion says, as well “as appraisers, real estate agents, title companies and agents, lenders, mortgage brokers, or other companies that provide information in connection with settlements, such as credit reports and flood determinations.”

4. Non-neutral steering (i.e., referrals) can involve the use or presentation of information

The non-neutral use of information can involve “manipulation or biasing of the inputs or formula” an operator uses to generate comparisons. For example:

• A company could let consumers compare options based on purportedly objective criteria, such as interest rates, but make sure lenders who pay rank high anyway.
• Platforms can exclude or place low weight on criteria that would favor a competitor, and they can manipulate formulas to favor certain providers.

Platform operators also can stray from neutrality by their presentation of information by:

• Providing names and phone numbers of all participating providers but providing links only for higher-paying providers.
• Listing lenders that pay more on a first page of results ranked by interest rate. That creates the impression the platform has ranked all participants by interest rates, even though a check on a second or third page of results would reveal lenders offering the same or lower rate.
• Highlighting a top-ranked (and high-paying) lender by showing competitors in smaller font or requiring users to scroll down.
• Labeling a lender as “sponsored” or “featured.” Lenders typically pay for this enhanced placement, but some platforms imply the lender earned that placement due to a ranking of neutral criteria.
• Listing a participant who has paid for enhanced placement multiple times, using the same name or an affiliated name.
• Showing a “top-ranked” lender alongside other options – but only showing the “top-ranked” lender when a consumer returns to the site.

5. Algorithms are not a defense

The CFPB says “it is no defense” if a platform’s non-neutral use or presentation of information “was allegedly the product of a complex algorithm. Operators are expected to know whether their platform uses or presents information in a non-neutral manner, even if the platform may employ complex algorithms in using or presenting the information.”

6. Paying ‘a thing of value’ for a referral violates RESPA

The opinion says a “thing of value” includes payments a platform operator receives as part of a contract. The opinion also says “there presumably would be an express agreement or understanding to pay for that enhanced placement” if the service provider receives enhanced or non-neutral placement. Even absent an express agreement or understanding for enhanced placement, the CFPB says, “an agreement or understanding for referrals” likely “can be established … through a pattern, practice, or course of conduct.”

7. Violations can entail service providers paying the same – or different – fees

Charging different fees to similarly situated service providers can constitute evidence an illegal referral fee, the CFPB says. Yet the agency also makes clear that an operator can violate RESPA’s ban on referrals even if charging service providers the same fees.

8. A part of RESPA permitting payment for goods furnished or services performed does not permit payments for non-neutral steering

Section 8(c)(2) of RESPA allows for payments for goods or facilities furnished or for services performed, but the CFPB says it does not apply here. The reason? Referrals resulting from non-neutral steering are not compensable services under RESPA.

9. The opinion does not say how many lenders a platform must display to qualify as a computer loan origination system

Industry representatives have long sought guidance on the number of lenders or providers a platform must feature to qualify as a valid computer loan origination (CLO) system.  The CFPB has applied a 1996 CLO policy statement since taking over responsibility for RESPA in 2010. The opinion does not provide a number. It does say, though, that “presenting a greater number of comparison options rather than fewer makes it less likely that the operator is steering the consumer to one or more settlement service providers.”

10. The CFPB identified several examples of ways that digital platforms can violate RESPA

The opinion says digital platforms may violate RESPA by:

• Ensuring the “best match” is the highest bidder. Consumers often share criteria to find a best match, such as their desired location, loan amount and credit score. When a platform skews results to display the highest bidding participant as the “best match,” the CFPB notes, that could violate a prohibition on unfair, deceptive, or abusive acts or practices (UDAAPs) if the platform misrepresents the accuracy of platform information, including about objectivity in rankings.
• Ranking lenders by rotation. Platforms could run afoul of RESPA by purporting to rank lenders on a consumer’s input but actually displaying top lenders as part of a structure where lenders take turns in the top spot.
• Favoring an affiliate. Digital platform operators should avoid promoting an affiliate, the opinion says. Significantly, the CFPB says a RESPA exemption related to affiliated business arrangements may not apply.
• Sending texts or emails favoring a lender. A platform that is paid to encourage a consumer to apply with a lender engages in promotional activity that undermines its neutral presentation; that activity influences the consumer’s selection and amounts to a referral, the CFPB says.
• Offering to connect a consumer with a lender. Some platforms offer consumers a call or chat with a lender, known as a “warm handoff” or “live transfer.” A platform may tell the consumer he or she will be “in good hands,” but, in reality, the lender receiving the lead may just be the first lender to respond when the platform flags a prospect. In such cases, the CFPB says, the operator “is providing a promotional ‘service’ that is not actual, necessary, and distinct from the operator’s comparison function.”

Implications for potential enforcement activity

The opinion notes that it describes activity that could implicate the Dodd-Frank Act’s prohibition on unfair, deceptive, or abusive acts or practices. It says other laws that relate to digital platforms may include the Truth in Lending Act, Equal Credit Opportunity Act, Telemarketing Sales Rule, Federal Trade Commission Act, Telephone Consumer Protection Act and Fair Credit Reporting Act as well as state and federal privacy and licensing laws.

In remarks, Chopra made clear that he views the opinion as part of a broader effort to address conduct the CFPB considers “anti-competitive.”  In his view, comparison shopping platforms can “help consumers make sound financial decisions,” but those that “skew the offers” can result in higher prices for consumers and “hurt mortgage lenders, brokers, and loan officers” who feel compelled to “pay-to-play.”

For more information on the advisory opinion, please contact John Coleman, Joe Kolar, John Kromer, Jeff Naimon, Clint Rockwell, or an Orrick attorney with whom you have worked in the past.