Pay-to-Play in the CFPB’s Cross-Hairs: Digital Mortgage Comparison-Shopping Platforms under RESPA Scrutiny
The Consumer Financial Protection Bureau (CFPB) ended a more than decade-long hiatus since the last formal guidance regarding Section 8 of the Real Estate Settlement Procedures Act (RESPA) on February 7, 2023, by issuing its advisory opinion (the “Advisory Opinion”) aimed at referral activity relating to mortgage comparison websites.
The last formal RESPA Section 8 guidance was issued by the Department of Housing and Urban Development and the latest Advisory Opinion is the first that the CFPB has issued since it assumed authority for RESPA in 2011.
The CFPB uses its Advisory Opinion to remind the real estate settlement services industry that RESPA’s anti-kickback principles apply to the modern digital marketplace.
What is all the fuss about?
RESPA Section 8. Section 8(a) of RESPA prohibits giving or receiving any fee, kickback, or “thing of value” in exchange for the referral of settlement services with the closing of a federally related mortgage loan. Services that occur at or prior to the purchase of a home (such as mortgage financing) are typically considered settlement services. In general, paying or receiving referral fees for a settlement service, unless a specific exemption applies, is illegal under RESPA. While RESPA Section 8(c) lists various kinds of payments that are not prohibited by RESPA, including an exemption for services rendered, the referral of a settlement service is not compensable under that exemption.
RESPA broadly defines a “referral” to include any oral or written action directed to a person that has the effect of affirmatively influencing the selection by any person of a settlement service provider or a related incidental business.
Digital Comparison-Shopping Platforms. The CFPB advises that operators of “Digital Mortgage Comparison-Shopping Platforms” may not be compensated for engaging in activity that qualifies as “referral” activity under RESPA, even under the guise of providing online advertising or lead generation services.
The CFPB defines such digital platforms as those “that include information or features that enable consumers to comparison shop options for mortgages and other settlement services, including platforms that generate potential leads . . .” (Digital Mortgage Comparison-Shopping Platforms). The Advisory Opinion sets forth a three-part test for when activity on such platforms violates RESPA:
(1) Non-neutral use or presentation of information about a settlement service provider on the platform;
(2) Such non-neutral use or presentation of information has the effect of steering the consumer to use, or otherwise affirmatively influences the selection of, those settlement service providers; and
(3) The operator receives a payment or other thing of value that is, at least in part, for such referral activity.
The CFPB criticizes such practices as impeding consumers’ “ability to engage in meaningful comparison of options.” Its 27-page Advisory Opinion goes on to provide nearly six pages of examples of conduct that may violate RESPA.
It’s Not Just Mortgage
While the Advisory Opinion focuses on mortgage comparison sites, its RESPA principles also apply to digital comparison shopping platforms that feature other real estate settlement services (such as, for example, homeowner’s insurance provided in connection with a RESPA-covered loan).
It’s Not Just RESPA
The Advisory Opinion also cautions operators of Digital Mortgage Comparison-Shopping Platforms that a litany of other laws and regulations potentially apply to their conduct, including: Dodd-Frank Act prohibitions on unfair, deceptive, or abusive acts and practices; the Truth in Lending Act; the Fair Credit Reporting Act; the Telemarketing Sales Rule; the Telephone Consumer Protection Act; federal privacy laws; and a variety of state laws.
Key Takeaways
The CFPB’s new guidance is a reminder that RESPA “referrals” potentially can occur in the digital marketplace, from endorsement language to the use of programmatic (e.g., algorithmic) functions. As always, a Section 8 analysis will be heavily dependent on the actual facts and circumstances.
In light of the Advisory Opinion, anyone who operates or participates in a digital comparison-shopping platform for real estate settlement services should revisit RESPA and related regulatory risk. This fresh look should consider the information used to generate comparison options, procedures for selecting participating providers, and the manner in which the platform generates and sells leads.
For those who engage in online activity without the use of a comparison-shopping platform, the Advisory Opinion in and of itself does not compel a fresh look. As always, however, online activity such as advertising, lead generation, and the promotion of affiliated businesses may still be subject to Section 8 principles and should be vetted carefully for RESPA compliance.
The issuance of this RESPA Advisory Opinion suggests that RESPA enforcement is not as far down on the list of CFPB enforcement priorities as many may have thought.
