On February 7th, the Consumer Financial Protection Bureau (CFPB) issued an Advisory Opinion addressing the applicability of Section 8 of the Real Estate Settlement Procedures Act (RESPA) to operators of certain online mortgage shopping platforms, including those that generate potential leads for participating lenders.
What is the CFPB?
The CFPB is a federal law enforcement agency whose mission is to promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services. It sets and enforces rules that are intended to allow regulated entities to compete on a level playing field and enable consumers to clearly see the costs and features of financial products and services.
What is an Advisory Opinion?
The CFPB’s Advisory Opinions provide written guidance to assist regulated entities to better understand their legal compliance obligations concerning the statutes, rules, and regulations enforced by the CFPB.
What is RESPA Section 8?
RESPA provides a series of protections for consumers who are in the process of buying a home, applying for or closing on a mortgage, making escrow payments, or purchasing other services associated with most residential real estate transactions. Among other things, RESPA Section 8 prohibits giving or accepting a fee, kickback, or thing of value pursuant to an agreement or understanding (oral or otherwise), for referrals of mortgage loan business.
What Does the Advisory Opinion Cover?
The Advisory Opinion addresses consumer-facing online mortgage comparison platforms that allow consumers to search and compare options for mortgages and related products and services applicable to their needs (throughout the remainder of this article, these will be referred to as a “Mortgage Comparison Site” or “MCS”).
To participate in an MCS, consumers are often required to go through an online form submission process and provide their contact information, after which they are presented with a range of supposedly suitable lenders. The MCS typically will generate leads for participating lenders by facilitating the consumer’s click-through to a lender website and/or selling the consumer's contact information to one or more lenders.
The Advisory Opinion describes how MCS operators violate RESPA section 8(a) if the MCS provides enhanced placement or otherwise steers consumers to participating lenders based on compensation they receive rather than on neutral criteria.
More specifically, Advisory Opinion states that an MCS operator receives a prohibited referral fee when the MCS presents information about one or more participating lenders in a non-neutral manner that encourages consumers to select one or more of those lenders, and the operator receives a payment or other thing of value for that referral activity. According to the Advisory Opinion, MCS operators exert "prohibited affirmative influence" when they engage in tactics such as:
(1) Listing the names and telephone numbers of all participating lenders but only linking to the websites of those lenders paying more.
(2) Listing higher-paying lenders on the first page and ranking them by interest rate so that all lenders appear to be ranked by that factor, while including other lenders on the second page that offer identical or even lower interest rates but pay less.
(3) Permitting a consumer to generate a presentation of ranked lender options and receiving a higher fee if the consumer clicks on the top-ranked lender compared with the other lenders
(4) Segregating or prominently highlighting the top-ranked lender based on how much it pays and presenting other lenders in very small font requiring the consumer to scroll down.
(5) Labeling a lender that appears near the top of a ranking as a “sponsored lender,” “featured lender,” or similar phrase because the lender paid for enhanced placement, but displaying the lender in a manner that implies that it earned its placement within the platform’s rankings based on neutral criteria.
Through all the actions outlined above, an MCS presents information to increase the likelihood of consumers selecting lenders that pay more, as opposed to other options that may be similarly suitable or even better for the consumer. Of course, many Mortgage Comparison Sites operate in this very manner and sell leads to the highest bidder. The Advisory Opinion states in no uncertain terms that putting a thumb on the scales in exchange for a higher payment constitutes an illegal referral in violation of RESPA.