The Consumer Financial Protection Bureau (CFPB) has warned that Digital Mortgage Comparison-Shopping Platforms may violate the Real Estate Settlement Procedures Act’s (RESPA) anti-kickback rules. At issue are digital platforms or “online marketplaces” that enable potential borrowers to comparison shop options for mortgages and other settlement services. These websites allow potential borrowers to enter limited information that is typically part of a mortgage application, and then the platform operator purports to compare various mortgage options based on the information. The provided options typically generate paid leads for the suggested lenders and the website operator often sells the potential borrower’s contact information.
RESPA’s anti-kickback rules generally prohibit giving or receiving “any fee, kickback or other thing of value” for services involving a federally related mortgage loan. Referral fees are among the prohibited kickback fees, and a “referral” is defined under Regulation X defined as:
[A]ny oral or written action directed to a person which has the effect of affirmatively influencing the selection by any person of a provider of a settlement service or business incident to or part of a settlement service when such person will pay for such settlement service or business incident thereto or pay a charge attributable in whole or in part to such settlement service or business.
12 CFR § 1024.14(f)(1). The anti-kickback provision applies to a wide range of settlement services, including title examination, title insurance, real estate brokerage, and mortgage brokerage.
Under the CFPB’s Advisory Opinion, a company makes a referral when it “non-neutrally uses or presents information and that has the effect of steering the consumer to use, or otherwise affirmatively influences the selection of, a settlement service provider[.]” For example, a company influences or steers a potential borrower when it purports to provide loan options based on objective criteria (such as interest rate or customer service), but boosts the rankings of lenders who pay more to participate on the platform or lowers the ranking for a lender that pays a lesser referral fee.
Although the CFPB cautioned that it did not provide an exhaustive list, it identified the following example of Digital Mortgage Comparison-Shopping Platforms that violate RESPA Section 8:
- Pay to play and steering to highest bidder (e.g., when the platform purports to identify the “best match” but skews the results toward the highest bidding lender participating on the platform);
- Payments only from and promotion of lenders who rotate in the top spot (e.g., where consumers input information about their needs to generate lender rankings, but the platform rotates lenders in the top spot randomly or based on a predetermined schedule where the rankings do not reflect a response to the consumer’s inputted information);
- Preferencing platform participants that are affiliates (e.g., where a platform allows a potential borrower to view rankings of comparable mortgage brokers, which includes affiliated and non-affiliated brokers, but the platform operator manipulates the application of the ranking criteria so that its affiliated mortgage brokers appear higher than the non-affiliated mortgage brokers); and
- Warm handoffs (e.g., where a potential borrower inputs information relating to the consumer’s borrowing needs and the operator calls the potential borrower and transfers the call to a lead generating lender instead of a lender tailored to the potential borrower’s input).
In a statement accompanying the opinion, the CFPB cited a Federal Trade Commission settlement with LendEDU, an operator of a consumer loan comparison-shopping platform for deceptive conduct under the FTC Act. Although the LendEDU settlement was not enforced under RESPA, the CFPB warned that platforms cannot receive payments for presenting lenders and other service providers who participate on their platforms in a non-neutral way. The CFPB stated that it views these reforms in conjunction with its efforts to combat fake reviews on digital platforms.
The attorneys at Stites & Harbison monitor the CFPB’s actions to provide timely advise to mortgage originator and mortgage servicers. Stites & Harbison’s financial services attorneys can advise you regarding your obligations under the ever-changing CFPB landscape.