The Consumer Financial Protection Bureau (CFPB) has issued an advisory opinion [1] to protect Americans from double dealing on digital mortgage comparison-shopping platforms. 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. When shoppers use a lender that is not the best option for their needs, they may end up with a lower quality lender or paying thousands more in closing costs or interest.
The CFPB’s advisory opinion [1] outlines how companies violate the Real Estate Settlement Procedures Act (RESPA) [2] when they steer shoppers to lenders by using pay-to-play tactics rather than providing shoppers with comprehensive and objective information.
“Given the rise in mortgage interest rates, it is even more important for homebuyers to shop and compare loan offers,” said CFPB Director Rohit Chopra [3]. “We are working to ensure that online platforms are not manipulating their search results in order to coerce kickbacks from lenders.”
Fixed-rate mortgage (FRMs) have soared above the 6% mark over the past 12 months, as prospective buyers looking for the best deal on mortgages or other settlement services often are turning to comparison-shopping platforms and mobile apps. Many of the websites and applications claim to offer ranked lists of providers suitable to the individual consumer’s needs. After providing their personal data to an online site to get access or run a customized search, people reasonably expect a neutral and fair presentation of the providers that may best meet their mortgage or other settlement needs.
Under RESPA [2], it is illegal for companies and individuals, including digital comparison-shopping platforms, to receive kickbacks and referral fees in connection with a transaction involving a residential mortgage or other real estate settlement service. Eliminating illegal kickback schemes fosters fair competition by forcing lenders and other providers to compete on a level playing field and leads to lower rates and higher quality service.
“Thanks to these unlawful schemes, consumers may face higher prices, be set up to pay thousands of additional dollars in interest, and unwittingly participate in a market that is anti-competitive,” added Chopra. “But these schemes hurt mortgage lenders, brokers, and loan officers too. In fact, the CFPB often receives complaints about RESPA violations from mortgage professionals. Honest mortgage professionals shouldn’t feel that middlemen get to extort fees for them to be able to compete and have their mortgage offerings seen by consumers.
The CFPB’s latest advisory opinion [1] seeks to assist law-abiding companies to comply with existing law. It does not create any new requirements, but rather offers clarity on how firms can navigate issues associated with digital mortgage comparison-shopping platforms. It describes how these companies may violate RESPA, and potentially other laws, if they coerce payments from mortgage professionals, unlawfully steer consumers, or engage in other illegal referral activities, including:
- Presenting one or more service providers in a non-neutral way: The platform’s operator presents lenders based on extracted referral payments rather than the shopper’s personal data or preferences or other objective criteria. For example, the operator presents a lender as the best option because that lender pays the highest referral fee. However, the shopper is led to believe the lender was selected based on their shared personal data or preferences. In one variation, digital mortgage comparison-shopping platforms may receive payments from lenders to rotate them as the top presented option regardless of whether the highlighted lender is the best fit for the shopper.
- Biasing the platform’s internal formula to favor preferred providers: The platform’s inputs or formula are manipulated to generate comparison options favoring higher-paying or preferred providers. For example, a platform’s formula is designed to steer shoppers to use providers in which the operator has a financial stake. In this case, the shopper is unaware that the platform’s formula was potentially designed to steer them away from non-preferred providers.
The Consumer Financial Protection Act of 2010 [4] transferred authority for RESPA to the CFPB from the Department of Housing & Urban Development (HUD). This advisory opinion supplements guidance HUD provided in 1996 on early versions of comparison-shopping platforms, which the CFPB continues to apply.
“Today’s announcement complements the CFPB’s efforts to ensure the mortgage market remains resilient and competitive, particularly in the current rate environment,” said Chopra. “The CFPB will build on its work by looking more closely at how to spur more mortgage modifications and refinancing as market conditions change.”