QUESTION
We are a large mortgage lender that puts its listing on a website aggregator. We are one of many lenders that are on their website. They even put themselves on their website, which competes with our listing. The aggregator generates leads for us. We compensate this online lead generator for advertising our rates and loan products.
Although the online aggregator provides information about our company and other companies, it does not do any business with us other than advertise our rates and products – although it does provide a page about how customers rate our services – and it’s not involved in making loans, loan approvals, credit screening, or making loans.
Essentially, their role just involves collecting information about potential customers and passing it on to us. We then contact the customer. We’ve been with them for a while; however, now we’re getting complaints. And recently, the CFPB seems to be looking into these types of aggregators. We are concerned that we may get caught up in the CFPB’s investigation.
Maybe you can
shed some light on the CFPB’s investigation into online lead-generating platforms
like the one we’re on. Supposedly, the customers can compare rates and products
and choose a lender.
What is the CFPB’s position on these online platforms that generate leads by online aggregators?
ANSWER
From time to time, we are contacted by these types of lead generators. We’ve provided quite a bit of regulatory guidance in this area. We worked with one such company recently. Early on, we noted RESPA violations. Instead of wanting to fix the compliance challenges, they decided not to change anything, thereby exposing themselves to excessively high legal and regulatory risk. At that point, we terminated the relationship.
Listen, those who know me know I do not tolerate companies that want to mess with legal and regulatory compliance. Our motto is Creating a Culture of Compliance, and we take our mission seriously. We work with the smallest of the small and the largest of the large, and our goal is to ensure that a client stays compliant. Don’t expect to retain us if you’re looking for ways to skirt regulatory compliance.
Technically, the term for the online lead generator that aggregates lenders’ products, services, and rates is Digital Mortgage Comparison-Shopping Platforms.
The CFPB issued an Advisory Opinion on February 7th detailing the implications for companies that operate online mortgage and settlement service comparison platforms and the lenders and service providers who pay to be featured on such platforms.[i] More about that momentarily.
The CFPB is using HUD’s 1996 Policy Statement, which is focused on digital platforms that allowed consumers to comparison shop for settlement services.[ii] HUD called these platforms “computer loan origination systems” or “CLOs.” The CLO Policy Statement was issued back when HUD had substantive authority over RESPA before that authority was transferred to CFPB in Dodd-Frank.
It is probably best to view the Advisory Opinion as a warning to market participants of specific conduct that the CFPB believes may violate RESPA. It may be that the Advisory Opinion will manifest in the form of enforcement activities.
The main subject of the Advisory Opinion is the conduct in the operations of online comparison platforms that it refers to as “non-neutral.” That term harks back to the CLO Policy Statement. By “non-neutral,” the CFPB means listing provider names or information in a way that singles out or prefers one lender over another for reasons other than neutral criteria, such as an interest rate for a potentially available loan. The legal segue is that the CFPB is stating that such non-neutral presentations can affirmatively influence the selection of the favored provider. An example of such preference could be the preference in rankings of positioning of a lender on the first page of selection results.
The CFPB states[iii]
its position regarding RESPA violations involving online mortgage comparison
platforms in these two descriptions:
1) 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.
2) 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 summary section of the Advisory Opinion asserts an outline that infers that online comparison platforms receive an illegal referral payment in violation of Section 8 of RESPA when the following three factors are all present:
1. The platform non-neutrally uses or presents information about one or more settlement service providers participating on the platform;
2. That 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, thus constituting referral activity; and
3. The platform receives a payment or other thing of value that is, at least in part, for that referral activity.
The CFPB discusses many different examples of types of conduct that would constitute either a RESPA violation or potential evidence of one (at least in the CFPB’s view).
It’s worth noting that the CFPB’s Director Chopra issued an accompanying statement that warned the Advisory Opinion is “part of a broader all-of-government effort to end the illegal biasing of ostensibly neutral platforms.” I think we can construe that enforcement implications are prevalent.
With respect to the CFPB’s investigations reaching you, as a lender that puts its listing on a digital platform, there are two types of entities directly affected by the Advisory Opinion: (1) the operators of online comparison platforms and (2) the mortgage lenders who use them to advertise and generate consumer leads.
In my view, there are at least three essential concerns:
1. What information is being presented to consumers?
2. How is it being presented?
3. What payments are flowing from lenders to the platform operator?
The Advisory Opinion extensively discusses how a RESPA violation may occur in these arrangements, and determining a RESPA violation will depend on the facts and case-by-case analyses. That said, some of the examples of RESPA violations mentioned in the Advisory Opinion are views seemingly fashioned without the benefits of notice-and-comment rulemaking. For instance, it may be putting the cart before the horse to opine on what customers of online comparison platforms want from the lead generator service or whether they expect that information will be “non-neutral” in all instances.
This gets us to the potential problem of a lender paying compensation to be listed as a “sponsored” or “featured” provider. The CFPB appears to suggests that RESPA may be violated even where every lender pays the same compensation to the platform operator, if the information provided has the effect of steering a consumer to a particular lender.
The HUD 1996 Policy Statement mentions that the presentation of only a single lender as a lender option may be problematic. However, the Advisory Opinion does not offer guidance on how this could be affected by scenarios where only one available provider meets the consumer’s needs or stated preferences. Yet, there is theory, and there is practice, and in practice, there is the existing mortgage market, where, absent guidance, uncertainty ensues.
Then there is the matter of “warm handoffs.” That is the term describing the sequence wherein a platform operator facilitates direct contact between a consumer and a particular lender. Warm handoffs can be problematic if the identification of the lender is not based on non-neutral criteria. Yet again, there is not much guidance in the Advisory Opinion on what is a “non-neutral” selection in this context and when and how a handoff becomes a “warm handoff.” Is it non-neutral for the lender’s selection to be based on its speed of response? Is it non-neutral to be based on the available loan product meeting all of the consumer’s identified criteria? We need substantive guidance to know what is a warm handoff and, from the view of regulatory risk, what response could cause a RESPA violation.
Some mortgage comparison platforms do not disclose their arrangements in a way that the customer can easily read them. Sometimes, the disclosures are found by clicking on a site map or footer link to find them. This is a marketing ploy, a workaround, where disclosure is provided but not readily seen. But an online comparison platform should provide clear and conspicuous disclosure of how it uses and presents participating lenders’ information. Whatever the case, however, these disclosures by themselves do not prevent a RESPA section 8 violation.
Thus, even if an online comparison platform clearly discloses to a consumer exactly how lenders are ranked or presented, the CFPB may still view it as a RESPA violation if the presentation or ranking methodology is not conducted in a sufficiently “neutral” manner.
Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
[i] Real Estate Settlement Procedures Act (Regulation X); Digital Mortgage Comparison-Shopping Platforms and Related Payments to Operators, Advisory Opinion, 12 CFR Part 1024, Bureau of Consumer Financial Protection. https://files.consumerfinance.gov/f/documents/cfpb_respa-advisory-opinion-on-online-mortgage-comparison-shopping-tools_2023-02.pdf
[ii] RESPA Statement of Policy 1996–1, Regarding Computer Loan Origination Systems (CLOs), HUD, 61 FR 29255 (June 7, 1996). The HUD CLO Policy Statement was issued as part of a broader set of HUD regulations and interpretations that addressed employer-to-employee payments. See 61 FR 29238 (June 7, 1996). Because some of these regulations and interpretations were never finalized, see 61 FR 58472 (Nov. 15, 1996), certain aspects of the HUD CLO Policy Statement not relevant to this Advisory Opinion—for example, section 4, addressing “Payments of Commissions or Bonuses to Employees”—were not made effective by HUD and would not be applied by the CFPB.
[iii] CFPB Issues Guidance to Protect Mortgage Borrowers from Pay-to-Play Digital Comparison-Shopping Platforms, (Financial arrangements that influence or manipulate search results are illegal), Press Release, February 7, 2023, Consumer Financial Protection Bureau https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-guidance-to-protect-mortgage-borrowers-from-pay-to-play-digital-comparison-shopping-platforms/
