On February 7, 2023, the CFPB issued an Advisory Opinion, "Digital Mortgage Comparison-Shopping Platforms and Related Payments to Operators." Introduced by Director Rohit Chopra as a measure meant to protect mortgage consumers during times of rising interest rates, the opinion provides detailed and prescriptive guidance to operators of digital mortgage comparison-shopping and lead generation platforms regarding how these platforms may violate RESPA Section 8's anti-kickback provisions if they "steer consumers to platform participants based on compensation the platform operator receives from those participants rather than based on neutral criteria."
If the CFPB's new guidance at times reads like an attempt to wedge a "square" deceptive digital marketing peg into a "round" RESPA anti-kickback hole, Director Chopra explains why. Citing other recent actions by the CFPB and FTC regarding fake online reviews and "pay-to-play steering" of consumers, as well as calls for change in mobile app marketplaces, the opinion is described as "part of a broader all-of-government effort to end the illegal biasing of ostensibly neutral platforms." The opinion takes aim at any "non-neutral" use or presentation of information if mortgage comparison-shopping platform operators receive payments from participating lenders and service providers. And if platforms then make recommendations based on consumer-provided input, and any preferencing or preferred placement of lenders is involved, the opinion all but assumes that these enhanced placements are not advertising but evidence of an illegal referral fee arrangement under RESPA.
The CFPB's strident tone and approach in the Advisory Opinion harkens back to the CFPB's since-rescinded 2015 RESPA Section 8 Compliance Bulletin which, coupled with contemporaneous vigorous enforcement activity, was viewed by some in the industry as effectively outlawing most forms of Marketing Services Agreements. The CFPB's guidance on digital mortgage comparison-shopping platforms similarly complicates market participants' ability to tease out the difference between advertising to a wide audience and referrals of specific consumers for purposes of RESPA Section 8 compliance.
Read on below for additional background, a summary of the detailed new 27-page guidance, and implications for future RESPA Section 8 enforcement.
Background: How did we get here?
Congress enacted RESPA in 1974 to, among other goals, "eliminat[e] … kickbacks or referral fees that tend to increase unnecessarily the costs of settlement services." 12 U.S.C. § 2601(b)(2). RESPA Section 8 prohibits giving and accepting any fee, kickback, or thing of value for referring "business incident to or a part of a real estate settlement service involving a federally related mortgage loan" to any person, but allows payment of bona fide compensation for goods or services actually performed. See 12 U.S.C. §§ 2607(a), (c)(2); see also 12 C.F.R. §§ 1024.14(b), (g).
In 1996, the U.S. Department of Housing and Urban Development (HUD), which had jurisdiction over implementing RESPA pre-CFPB, issued guidance addressing the use of what it called, at the time, Computer Loan Origination Systems, or CLOs. The Advisory Opinion explains that today's digital mortgage comparison-shopping platforms fit within HUD's 1996 definition of CLOs, referencing HUD's 1996 statement that technology was evolving and that its guidance was meant to extend beyond technology that existed in the mid-1990s. The CLO guidance allowed settlement service providers to pay CLOs a reasonable fee for services, such as making information about the provider's products available to consumers for comparison with the products of other settlement service providers. But it required CLOs to present providers neutrally, based upon factor(s) relevant to the borrower's choice of product, such as APR. The guidance explained that accepting payment in exchange for favoring one settlement service provider (like a mortgage company) over others, such as by placing a provider at the top of a list, would be considered a non-neutral presentation of information, as would only listing one provider, and would likely be considered a referral fee. HUD also warned that different fees for different providers would incentivize illegal steering.
The 1996 CLO guidance did not frame the CLO services it was describing as a form of digital marketing or advertising (online advertising was only in its nascent stages at the time); the guidance was addressing computer systems that were developed "to assist consumers in finding a lender, selecting a mortgage product, originating a mortgage, or choosing among other settlement service providers or products." Although many of today's digital mortgage comparison-shopping platforms may be licensed as mortgage brokers and may provide some of the services described in the 1996 guidance, many view themselves more in the nature of an advertising and marketing platform for mortgage lenders—offering a platform to advertise mortgages to broader swaths of the interested public, not just to specific consumers.
Because of this, many of these platforms may have assumed that the RESPA Section 8 guidance most relevant to their activities was guidance related to Marketing Services Agreements, or MSAs. In 2015, nearly two decades after HUD issued the CLO guidance, the CFPB issued a bulletin that appeared to almost categorically characterize MSAs as prohibited referral activity (at the time, departing from the industry's interpretation of other HUD guidance, a 2010 interpretive rule). But the 2015 bulletin was repealed in 2020 when the CFPB simultaneously issued FAQs intended to provide additional clarity regarding permitted uses of MSAs. As we discussed in a previous post, the CFPB's actions in 2020 appeared to indicate a softening approach toward RESPA Section 8 enforcement and MSAs in particular. Less than three years later, the February 2023 Advisory Opinion could be signaling that RESPA Section 8 enforcement is headed in the opposite direction.
The Advisory Opinion's RESPA Section 8 Guidance for Mortgage Comparison-Shopping Platforms
RESPA Section 8 prohibits giving or receiving any fee, kickback, or thing of value, pursuant to an agreement, for a referral involving a "federally related" mortgage loan. See 12 U.S.C. § 2607(a); see also 12 C.F.R. § 1024.14(b). The Advisory Opinion explains that a platform receives a prohibited referral fee when the platform:
- non-neutrally uses or presents information about one or more settlement service providers
- in a way that has the effect of steering the consumer to use (or affirmatively influences the selection of) those settlement service providers, constituting referral activity,
- in exchange for a payment or other thing of value that is, at least in part, for that referral activity.
To illustrate what may constitute non-neutral use and presentation of information, steering, and illegal referrals, the CFPB provides 13 examples, previewing what activities the Bureau assumes will result in violations of RESPA Section 8. The opinion explains why each activity violates RESPA and for many of the examples—in line with Director Chopra's focus on deceptive digital marketing and "illegal biasing"—indicates that UDAAP violations are likely present as well. The only permitted presentation of information that the opinion specifically describes is something that the 1996 CLO guidance specifically permitted as well: "listing lenders from lowest to highest APR in ascending order." Advisory Opinion at 10, note 36 and 17, note 55.
Scroll to the bottom of this post (or click here) for a detailed description of the CFPB's examples on non-neutral uses and presentations and other activities that likely violate RESPA Section 8, which should be carefully evaluated against current mortgage comparison-shopping platform advertising practices. Many of the examples involve a platform that has a fee differential for providers, and the CFPB explains that a fee differential and enhanced placement can, on its own, be evidence of an illegal referral fee "absent other facts indicating that the payment is not for enhanced placement or other form of steering." And steering alone, even without a fee differential, may be a RESPA violation.
The Advisory Opinion briefly mentions other laws in addition to UDAAP that may apply to how digital mortgage comparison-shopping platforms conduct their business. These include the Equal Credit Opportunity Act and Regulation B; S.A.F.E. Mortgage Licensing Act and Regulation H; the Truth in Lending Act and Regulation Z, including loan originator compensation and steering rules; state fee restrictions and licensing requirements; state and federal privacy laws; the FTC Act; the Telemarketing Sales Rule; and the Fair Credit Reporting Act in lead generation scenarios involving trigger leads.
This Advisory Opinion may indicate a renewed interest in RESPA Section 8 enforcement as interest rates rise and mortgages and the cost of homes generally become more expensive for consumers. In line with Director Chopra's cited "all-of-government" push toward enforcing neutrality in the online comparative shopping and customer review arena, the CFPB seems bent on making enhanced placement of lenders who pay higher advertising fees on mortgage comparison-shopping platforms a thing of the past.
Current market practices are clearly in the crosshairs of this new guidance. Although the CFPB states that "the opinion does not create any new requirements," February 7, 2023 Press Release, for many platforms, this Advisory Opinion may change the way they choose to advertise providers and sell their services. Both platforms and providers alike are at risk of being found in violation of RESPA Section 8. That said, the Advisory Opinion may leave some room for nuance, particularly when read in conjunction with other recent CFPB guidance on MSAs. Platforms and providers should carefully review their mortgage comparison-shopping platform models and related MSAs against the guidance in the Advisory Opinion and be prepared to make changes where warranted.
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The Advisory Opinion's examples of non-neutral use and presentation of information, steering, and illegal referrals:
Examples of non-neutral use of information to generate comparison options:
- Preferential ranking of higher-paying providers: A platform allows consumers to generate comparison options based on purportedly objective criteria (for instance, lowest interest rate), but the formula boosts the rankings of higher-paying providers on the platform by excluding or placing a lower weight on purportedly objective criteria that would otherwise favor a lower-paying provider.
- Formulas that favor providers over consumer preferences: A platform seeks consumers' preferences regarding the factors that are most important to the consumer in choosing a settlement service provider, purporting to incorporate the factors into the formula used to generate options, but the formula favors certain participating providers by declining to honor the consumer's preferences or placing weight on inaccurate information about the provider (such as outdated interest rate information) to increase the rankings of the provider.
Examples of non-neutral presentation of information about comparison options:
- Ease of access to higher-paying providers: A platform provides names and telephone numbers for all providers but only provides weblinks for higher-paying providers.
- Preferential placement of higher-paying providers:
- A platform lists providers that pay more on the first page (or higher up on the webpage) and appears to rank them by interest rate, while the second page shows lower-paying providers that have the same or lower interest rates.
- A platform permits consumers to generate a presentation of ranked providers, but it highlights higher-paying providers as top-ranked, segregating them from other options that are provided in small font and require scrolling to see.
- Presenting paying providers as an objectively good match: A platform receives payment for enhanced placement and labels the payor-providers as "sponsored," "featured," or similarly, but the platform is designed to imply that the provider has earned its placement on a neutral basis.
- Multiple instances of higher-paying providers: A platform receives payment for enhanced placement and lists the higher-paying provider multiple times, using the same name or an affiliated name.
- Presenting only paying providers in subsequent visits: A platform allows consumers to run a search of options, providing a top-ranked provider and other providers, but when the consumer returns, the platform only shows the top-ranked provider based on an agreement with the paying provider to only show that provider when a consumer revisits the platform.
Comprehensive examples of activities that violate RESPA Section 8:
- Pay-to-play and steering to highest bidder: The platform permits consumers to input relevant information on the platform and represents that the platform will use the information to identify the "best match" provider(s), which it does. However, the results are skewed to ensure that the highest bidding provider is the "best match."
- Payments only from, and promotion of, providers who rotate in top spot: The platform permits consumers to input information about their needs and presents provider rankings; however, the rankings are not based on the consumer's stated needs because either: (1) all providers take turns appearing in the top spot, randomly or on a schedule; (2) one provider has paid for the top spot; or (3) all providers on the platform pay in advance to take turns appearing in the top spot randomly or based on a predetermined schedule.
- Preference to affiliate platform participants: The platform permits consumers to input information and presents provider rankings, but the generated list of providers ranks affiliates higher than non-affiliated providers. The opinion notes that this activity may also implicate RESPA § 8(c)(4), covering arrangements between affiliated businesses. See 12 U.S.C. § 2607(c)(4)(A)–(C); see also 12 CFR § 1024.15(b)(1)–(3).
- Additional services that promote a platform participant: The platform permits consumers to input information and presents a neutral use and display ranking of providers based on consumer preferences. The platform also collects consumer contact information and arranges with a provider to promote the provider by sending the consumer a text message or email, encouraging the consumer to use the provider.
- Warm handoff: The platform uses a long form to gather detailed information from a consumer about their particular borrowing needs (e.g., credit score, target amount, etc.) and presents comparison information on multiple providers. The platform operator calls the consumer to offer a call, callback, or live chat with a provider and tells the consumer that they will "be in good hands" (or something to that effect). However, the platform operator sent out a notification to participating providers, and the identified provider is the first responder instead of the best match.