Talking Rates: Sales Meeting – Part II

Technical Scenarios

How Loan Officers Can Explain

the 2026 Mortgage Rate Surge

    

This article is Part II of a two-part series on the surge in mortgage rates. In Part I, we discussed simple questions. For Part II, we've selected several technical scenarios we think will interest our newsletter subscribers. We edited the transcript for clarity and length. Questions are emboldened.

Recently, Lenders Compliance Group was asked to host a meeting for a mortgage lender's sales team. 450 loan officers from across the country attended. Jonathan Foxx, our Chairman and Managing Director, hosted the meeting. We recorded it and obtained the transcript. We did not charge a fee. The format was a question-and-answer session in which loan officers asked us how to explain the surge in interest rates to their borrowers.  

Jonathan covered many scenarios, from simple to complex, reflecting borrowers' familiarity with financial conditions. We placed considerable emphasis on ensuring that the LOs' responses would comply with regulatory guidelines regarding contact with the public. The meeting lasted an hour, after which many LOs sent us additional questions.  

We have scheduled another compliance-related meeting with this lender on a different topic. We would like to schedule one with you! If you want us to host a free meeting, we would be glad to discuss the topic.  

Please email us here and tell us about your meeting topic! 

For this Part II article, we selected several technical questions we think will interest our newsletter subscribers. We edited the transcript for clarity and length. Questions are emboldened.   

This two-part article is separated into simple and technical scenarios, as follows: 

• Part I: Simple Questions
• Part II: Technical Questions     

TECHNICAL EXPLANATIONS 

Many borrowers follow the markets closely, so drop the analogies and explain how mortgages are actually priced. Depending on the borrower's level of understanding, four ideas may carry the conversation. These are the benchmark, the spread, the Fed's role, and the decisions in the borrower's control. 

Together, they usually cover the general range of concerns. But if you are unfamiliar with the technical side, do yourself a favor and read up on it; and if you don't know an answer, tell the borrower you will check – and get back to them promptly. 

The Benchmark 

Question: I work with high-net-worth borrowers. These people follow the market constantly. Yet they come to me for more feedback, especially when they're deciding on financing. I need a way to start the discussion that helps break the ice. What would you suggest? 

Answer: I would start with something easy to test the waters. I would say: 

"A mortgage rate is driven mostly by the 10-year Treasury yield, not the Fed funds rate. A 30-year mortgage has a 30-year term, but most are refinanced or paid off through a sale within about 7 to 10 years. Investors therefore price them against intermediate-term Treasuries. With the 10-year near 5.29% in early October, mortgage rates followed it up." 

It may seem counterintuitive to tell them what they probably already know, but start by showing you are going to tell it like it is, no matter what. Sophisticated borrowers – like all borrowers – want to work with LOs who keep it real! 

The Spread 

Q: I have a borrower who watched a YouTube video on the mortgage process and now thinks he's an expert! I respect his diligence. He even knew about negative convexity, which I never knew. So maybe he is an expert! But he can't figure out how the spread works. I tried explaining it. It didn't make sense to him. How can I walk him through how the spread works?

A: The spread is the part most borrowers have never heard of. With the 30-year mortgage at 7.28% and the 10-year at about 5.29%, the gap is roughly 2 points. Historically, it has averaged closer to 1.7 points.

Talking Rates: Sales Meeting – Part I

Simple Scenarios

How Loan Officers Can Explain

the 2026 Mortgage Rate Surge

    

Recently, Lenders Compliance Group was asked to host a meeting for a mortgage lender's sales team. The meeting was attended by 450 loan officers from across the country. Jonathan Foxx, our Chairman and Managing Director, hosted the meeting. We recorded it and obtained the transcript. We did not charge a fee. The format was a question-and-answer session in which loan officers asked us how to explain the surge in interest rates to their borrowers. 

Jonathan covered many scenarios, from simple to complex, reflecting borrowers' familiarity with financial conditions. We placed considerable emphasis on ensuring that the LOs' responses would comply with regulatory guidelines regarding contact with the public. The meeting lasted an hour, after which many LOs sent us additional questions. 

We have scheduled another compliance-related meeting with this lender on a different topic. If you would like us to host a free meeting, we would be glad to discuss the topic and schedule it. 

Please email us HERE and tell us about your meeting topic!

For this article, we selected several questions that should interest our newsletter subscribers. We edited the transcript for clarity and length. Questions are emboldened. The questions are grouped from simple (Part I) to technical (Part II). 

This two-part article is separated into simple and technical scenarios, as follows: 

• Part I: Simple Questions
• Part II: Technical Questions   

INITIAL OPENING COMMENT  

Mortgage rates have jumped sharply this fall, and borrowers are noticing. According to Freddie Mac, the average 30-year fixed rate reached 7.28% as of October 1, 2026. That is the highest level since November 2023, up from 7.03% a week earlier and 6.34% a year ago. 

For loan officers, this creates a communication challenge. A first-time buyer often needs a short, reassuring explanation. A borrower who follows the markets wants to understand how the pricing actually works. In this meeting, I will discuss how to respond to both types of borrowers with a possible script for each. 

SIMPLE QUESTIONS

The Bond Market  

Question: How do I explain the bond market's impact on mortgage rates?  

Answer: I think there are essentially two ways to answer. The first is what I would call a "one-sentence version." You could say:  

"Mortgage rates follow the bond market, and right now investors are demanding higher returns to lend money long-term, so borrowing for a house costs more than it did a few months ago."

But you may need a slightly longer version. In which case you could say:  

"Most people assume the Federal Reserve sets mortgage rates. (A quick, friendly correction builds credibility.) The Fed doesn't set mortgage rates directly, but they closely track the 10-year Treasury yield. Right now, both are moving up. The Fed raised the federal funds rate at its September 17^th meeting, and the 10-year Treasury yield rose to about 5.29% on October 1^st."  

This may be a bit too complex to understand, so provide an analogy, such as:  

"Think of your mortgage as a loan that gets packaged and sold to investors. Those investors could buy safe government bonds instead. When government bonds pay more, investors expect mortgages to pay more too, or they'll take the safer option. Right now those bonds pay over 5%, so mortgage rates have moved up with them."

Will AI Replace Me?

YOUR COMPLIANCE QUESTION 

I have been a loan officer for fifteen years. I am a single mother of two wonderful teenagers. I have also been the breadwinner for 15 years since my husband passed away. I keep reading how AI is going to replace me. 

In the last few weeks, I've read a few articles about how AI is transforming the mortgage world. Part of that transformation looks like I am going to lose my job and be replaced by a computer program. This is so unfair. I have spent all these years building my professional life, and now I feel it is all going to be trashed. 

I heard you speak at a conference recently. You spoke about your new AI Policy Program and answered many audience questions. One of them was about how loan officers, processors, and underwriters are worried about being replaced by AI. I would like you to share your remarks in your newsletter. 

Will AI replace loan officers like me? 

Signed, 

A Human Being 

OUR COMPLIANCE SOLUTION 

AI POLICY PROGRAM FOR MORTGAGE BANKING™ 

Our AI Policy Program aligns with Freddie Mac's AI governance requirements for Freddie Mac Sellers/Servicers. Responsible AI practices can help align AI system design, development, and use with applicable legal and regulatory guidelines.

Our AI Policy Program consists of the following policies: 

1.      Artificial Intelligence Governance Policy

2.      Artificial Intelligence Use Policy

3.      Artificial Intelligence Workplace Policy

4.      Artificial Intelligence Credit Underwriting Policy

5.      Artificial Intelligence Do & Do Not Policy

6.      Artificial Intelligence Ethics Policy

7.      Artificial Intelligence Vendor Management Policy 

Contact us for the presentation and pricing.  

RESPONSE TO YOUR QUESTION 

REVOLUTION AND EVOLUTION 

There have been many technological revolutions in human history. We are now at the advent of another revolution: the onset of artificial intelligence (AI) technology, a massive, incremental, worldwide expansion of knowledge in computer science dedicated to creating systems capable of performing complex tasks that typically require human intelligence. Each revolution has brought about profound changes in civilizations. Surges in technological development have characterized each revolution. 

From stone-age tools to learning to control fire, from foraging for food to the first agricultural revolution, from replacing bronze with iron, each stage of technical knowledge enabled widespread human development at the cost of some trade-off in the human social experience that had evolved heretofore. The printing press brought about mass production of books, democratizing knowledge and literacy; the scientific revolution shifted knowledge from philosophy to evidence-based insights; new farming techniques led to increased food output, population growth, and urbanization. 

And, of course, we all know of the industrial revolution, where machine-based manufacturing shifted society away from manual labor; this was then followed by the technical revolution, where mass production became deeply entrenched in lived experience, such as the creation of assembly lines, steel-making methodologies, and the application of electricity, internal combustion, and telecommunications. Over the last 100 years, the green revolution has introduced high-yielding crops, industrial fertilizers, and new agricultural technologies, thereby increasing global food production. 

Which Revolution Are We In Now? 

So, where are we now in the scheme of things? 

In my view, we are currently living in the information and digital revolution, but rapidly transitioning to the artificial intelligence revolution. We are living at a time when computers and transistors, the Internet, personal computing, and smartphones are being rapidly replaced by the artificial intelligence revolution, characterized by discoveries such as gene editing, advanced robotics, and nanotechnology.

Endorsements and Testimonials - FTC Rules

QUESTION 

I am the Director of Marketing at a mortgage lender in the Northwest. We are developing a marketing campaign using endorsements and testimonials on social media, social media influencers, press, radio, YouTube, and TV. While our compliance and legal departments are happy to review these promotions, they are not giving us clear guidelines to follow. 

Our legal department tells us that, because of the wide distribution of our campaign channels, some of the rules we must follow are based on the Federal Trade Commission's rules. I don't know if this is so, but I do know those rules can be kind of strict. I need to find out about some of the FTC's regulations involving endorsements and testimonials. 

What are some FTC guidelines for endorsements and testimonials? 

SOLUTION 

Advertising Tune-up

Marketing Tune-up

Advertising Manual

Advertising Compliance  

RESPONSE 

The Federal Trade Commission's (FTC) regulations are essential to follow for marketing campaigns. Indeed, the FTC implemented the Mortgage Acts and Practices – Advertising (MAP) rules![i] MAP rules are designed to prohibit misrepresentations regarding mortgage products. Yes, there are other Acts, regulations, and laws – federal and state – such as the following (to name a few salient ones): 

·       Fair Housing Act,

·       Equal Credit Opportunity Act,

·       Truth-in-Lending Act,

·       FHA/HUD, VA, USDA Regulations,

·       Real Estate Settlement Procedures Act,

·       State Regulations,

·       Fair Lending,

·       Unfair, Deceptive, or Abusive Acts or Practices, and

·       Federally required logos and disclosures. 

The Federal Trade Commission's MAP rules must be implemented in your marketing campaign. 

Advertising and marketing compliance is a highly complex area that requires very careful consideration prior to launching a marketing campaign. If you do not handle endorsements and testimonials appropriately, you can easily cause legal disputes and attract regulators. 

I have listed a few compliance solutions above. You can always contact me to discuss your particular marketing plan. We have worked for years with banks and nonbanks on their marketing campaigns. Here are just a few articles we've published on advertising compliance. 

The FTC requires endorsers to clearly and conspicuously disclose their sponsorship by the advertiser and requires that endorsements reflect the honest experience or opinion of the endorser and not contain representations that would be deceptive or unsubstantiated if the advertiser made them directly.[ii] Therefore, if an endorsement represents that the endorser uses the advertiser's product, the endorser must actually use the product at the time they endorse it.[iii] 

Advertisers using "consumer endorsements" must make clear whether the endorser's experience reflects the actual experience of typical consumers who use the product rather than the experience of a few individuals.[iv] Ensuring this clarity is critical because, in 2009, the FTC revised its guidance regarding consumer endorsements to eliminate the safe harbor previously provided for the use of disclaimers in conjunction with non-representative consumer testimonials, such as "results not typical" and "not all consumers will get this result." In other words, these disclaimers are no longer acceptable because the FTC believes they are not sufficient to overcome the misleading implication that a non-representative result depicted in an advertisement is what consumers will generally experience.

Restrictions on Gifts and Promotional Activities

QUESTION 

I am the Compliance Manager of a mortgage lender in the mid-West. Recently, we received a notice from the CFPB after their examination. One of their allegations is that we violated RESPA’s restrictions on referrals involving “gifts and promotional activities.” 

Our General Counsel has asked me not to go into the details. However, he approved my request to ask you a generic question about referrals. We need an “advanced warning” guideline to ensure this violation won’t happen. 

I want to know how to determine when a referral is a violation of RESPA. Maybe you can provide some guidance on whether an arrangement can be deemed an illegal referral. I want to be able to evaluate the arrangement based on a simple set of criteria to determine if it can lead to a referral violation. 

How can I determine if a referral is illegal under RESPA? 

COMPLIANCE SOLUTIONS 

Policies and Procedures 

Referrals Tune-up® 

Advertising & Marketing Compliance 

ANSWER 

It is possible to provide a generic guideline to act as an “advanced warning” of gifts and promotional activities that would likely trigger a violation of the Real Estate Settlement Procedures Act (RESPA). Under RESPA Section 8(a), gifts and promotions generally are “things of value” and, therefore, could, depending on the circumstances, violate RESPA Section 8(a).[i] 

If the gifts or promotions are given or accepted as part of an agreement or understanding for the referral of business incident to or part of a real estate settlement service involving a federally related mortgage loan, they are prohibited. 

Here’s an example. A settlement service provider[ii] gives professional sporting event tickets, trips, restaurant meals, or sponsorship of events (or the opportunity to win any of these items in a drawing or contest) to current or potential referral sources in exchange for referrals as part of an agreement or understanding, such conduct violates RESPA Section 8(a). By the way, the agreement or understanding need not be written or oral; a practice, pattern, or course of conduct can establish it. 

However, in certain circumstances, gifts or promotions directed to a referral source are not prohibited if they are a normal promotional or educational activity meeting the conditions in Regulation X, RESPA’s implementing regulation. 

Regulation X allows normal promotional and educational activities directed to a referral source if the activities meet two conditions: 

1.The activities are not conditioned on the referral of business.

2.The activities do not involve defraying expenses that otherwise would be incurred by the referral source. 

First Condition 

The first condition is that normal promotional and educational activities must not be conditioned on the referral of business. 

Factors that are relevant to whether the first condition is met may include the following: 

• Whether the item or activity is targeted to referral sources. If an item or activity is targeted narrowly towards prior, ongoing, or future referral sources, this could indicate that the item or activity is conditioned on referrals of business. 

Example A 

Suppose a promotional item is provided only to a limited set of settlement service providers who also happen to be current referral sources or an intentionally targeted group of future referral sources. In that case, this may suggest that the recipient is receiving the promotional item because of past or future referrals, and thus, the promotional item may be conditioned on referrals. 

Example B 

If, instead, a promotional item is provided to a broader set of recipients, such as the general public or all settlement service providers offering similar services in a given locality, then that may indicate that the promotional item is not conditioned on the referral of business. 

How often is the item or activity given to the referral source? If a referral source is routinely and frequently provided with an item or included in an activity, and particularly if that referral source is provided with the item or included in the activity more often than other persons, this could indicate that the item or activity is conditioned on referrals. 

Second Condition 

The second condition is that normal promotional and educational activities must not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement services or business incident to those settlement services. 

Factors that may be relevant to whether the second condition is met may include the following:

• Whether the item or activity involves a good or service that the referral source would otherwise have to pay for itself. 

Example A 

Suppose a promotional activity involves paying for mandatory continuing education expenses, certifications, licenses, or other items that the referral source would otherwise need to pay for on its own. In that case, the promotional item or activity is more likely to defray expenses. 

Example B 

Similarly, suppose the activity involves paying for the referral source’s office supplies branded with the referral source’s name, contact information, or logo. In that case, this is more likely to defray the expenses of the referral source. But suppose the activity involves providing the referral source with office supplies featuring the name, contact information, or logo of the entity providing the supplies. In that case, this is less likely to defray expenses, since it is unlikely that the referral source would otherwise use its own funds to purchase office supplies featuring the name and information of another entity. 

If the particular item or activity does not meet either of these conditions, it is not a normal promotional or educational activity meeting the conditions in Regulation X.

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 

Lenders Compliance Group

---

[i] 12 CFR § 1024.14

[ii] 12 CFR § 1024.2(b)(29)

Endorsements and Testimonials

QUESTION 

Our banking department called us out for publishing testimonials that our loan officers use. We were contacted by an examiner who said they had checked out some of the testimonials and endorsements and found that some were either bogus or misleading. 

First of all, I didn’t know a banking department could go so far as to check out the veracity of testimonials. 

Secondly, our loan officers are honest and get their business from referrals, but the banking department makes them look like they were intentionally making up bogus testimonials. 

Thirdly, the loan officers have hundreds of endorsements and testimonials. I don’t see how we can verify every one of them. 

I think the department is way out of line! It feels like they are harassing us. I would like to know your opinion about this kind of advertising. Endorsements and testimonials are a big part of our marketing strategy. 

What are some guidelines for endorsements and testimonials?

COMPLIANCE SOLUTION 

Policies and Procedures: Advertising Compliance 

ANSWER 

Endorsements and testimonial advertising are an important and valuable part of overall marketing. Of course, scrutinizing advertisements is an inherent responsibility of banking departments. As consumer advocacy agencies, they must ensure that the public is properly informed of a loan product or service. 

Many interlocking regulations have a substantive impact on advertising compliance because contact with the public by means of advertising is one of the most prevalent ways a financial institution can encourage consumers to use its services. 

The banking department is not “way out of line.” It monitors your loan flow process from the earliest advertisement that leads to an application, thence to underwriting, loan closing, and beyond. If you believe verifying the testimonials is too big a task, don’t publish them! A banking department will want to see that you documented a validity review of a testimonial or endorsement. 

Most loan officers are certainly honest. They are the lifeblood of mortgage banking. Everyone works together to ensure the consumer has a good experience. However, loan officers are on the front lines, most working on commission; they bring in the loans and the ones who financially suffer the most when sales slow or loans don’t close for some reason. There is no reason for them to be defensive when a banking department finds errors in their testimonials. But you need to watch out for a “pattern or practice” of bogus endorsements and misleading testimonials. 

So, let’s focus on the nature of endorsements and testimonials and not get all huffed up in righteous indignation. I will offer some thoughts on this subject and suggest you share them with your loan officers. Contact me here if you need advertising compliance. We have a team devoted solely to advertising and marketing compliance. 

DEFINITION 

As you probably know, I like to get a definition in place for a cogent discussion. 

Here’s how I define endorsements and testimonials:[i] 

Endorsements and testimonials are any advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser. 

RULES OF THE ROAD 

There are certain indisputable rules of the road that you must apply. For this article, I use the terms endorsement and testimonial interchangeably. These are the four most important rules to follow. 

1.     Honesty 

Endorsements must reflect the endorser's honest opinions, findings, beliefs, or experiences. Furthermore, an endorsement may not convey any express or implied representation[ii] that would be deceptive if made directly by the advertiser. 

2.  Context 

Although the endorsement does not need to be the exact words of the endorser – unless the endorser requests it - the endorsement may not be presented out of context or reworded to distort in any way the endorser’s opinion or experience with the product. 

3.  Bona Fide User 

When the advertisement represents that the endorser uses the endorsed loan product or service, the endorser must have been a bona fide user of it at the time[iii] the endorsement was given. 

4.  Full Disclosure 

Advertisers are subject to liability for false or unsubstantiated statements made through endorsements or for failing to disclose material connections between themselves and their endorsers.[iv] (Be careful here! Endorsers may be liable for statements made in the course of their endorsements.) 

GUIDELINES FOR ENDORSEMENT TYPES 

Generally, three types of endorsements are encountered in mortgage banking: consumer, expert, and organization. I will provide a brief overview of each. 

Consumer Endorsements 

For the most part, there are three types of consumer endorsements.[v] Here’s a brief outline. 

1.     A consumer endorsement about the performance of an advertised product or service will be interpreted as representing that the product or service is effective for the purpose depicted in the advertisement. 

2.     An advertisement containing an endorsement relating the consumer’s experience on a central or key attribute of the product or service will likely be interpreted as representing that the endorser’s experience is representative of what consumers will generally achieve with the advertised product or service in actual, albeit variable, conditions of use.

 

3.     Advertisements presenting endorsements by what are represented, directly or by implication, to be “actual consumers” should utilize actual consumers in audio and video, or clearly and conspicuously disclose that the persons in such advertisements are not actual consumers of the advertised product.

 

Expert Endorsements

 

There are two primary guidelines involving expert endorsements,[vi] as follows:

 

1.     If an advertisement represents, directly or indirectly (viz., by implication), that the endorser is an expert concerning the endorsement, the endorser’s qualifications must state factually the endorser has the requisite expertise with respect to the endorsement.

 

2.     Although the expert may, in endorsing a loan product, take into account factors not within their expertise, the endorsement must be supported by an actual exercise of that expertise in evaluating the product’s features or characteristics to the extent to which they have relevant knowledge and expertise,[vii] and which are relevant to an ordinary consumer’s use of or experience with the product and, importantly, are available to the ordinary consumer.

 

Organization Endorsements 

Endorsements from organizations can be tricky. There is one essential guideline. 

1.     Organization endorsements, especially expert ones, represent the judgment of a group whose collective experience exceeds that of any individual member, and whose judgments are generally free of subjective factors that vary from individual to individual.

 

This is the tricky part because an organization’s endorsement must be reached by a process sufficient to ensure that the endorsement fairly reflects the collective judgment of the organization. Moreover, if an organization is represented as being an expert, then, in conjunction with a proper exercise of its expertise in evaluating the product,[viii] it must utilize an expert or experts recognized as such by the organization or standards previously adopted by the organization and suitable for judging the relevant merits of such products. 

MATERIAL DISCLOSURE 

A few words about material disclosure. If there’s a connection between the endorser and the seller of the advertised loan product or service that might materially affect the weight or credibility of the endorsement – for instance, where the audience does not reasonably expect the connection – such connection must be fully disclosed. 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 

Lenders Compliance Group

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[i] 16 CFR Part 255, § 255.0(b): “…including verbal statements, demonstrations, or depictions of the name, signature, likeness, or other identifying personal characteristics of an individual or the name or seal of an organization.” For the purpose of this article, I refer the reader to Guides Concerning the Use of Endorsements and Testimonials in Advertising, Federal Trade Commission, 16 CFR Part 255.

[ii] §§ 255.2(a) and (b) regarding substantiation of representations conveyed by consumer endorsements.

[iii] § 255.1(b) regarding the “good reason to believe” requirement.

[iv] § 255.5

[v] § 255.2

[vi] § 255.3

[vii] See § 255.1(d) regarding the liability of endorsers.

[viii] Ibid

Steering Practices in Comparison Platforms

QUESTION 

A few months ago, you wrote about the regulatory challenges associated with comparison platforms. It was eye-opening to us. Because of your guidance, we revised our relationship with a comparison platform. Thank you! 

But I must write you about a recent problem with the comparison platform. The platform offers placement for our loan products because of financial inducement, making the listing likely to be seen by the consumer. The preferred placement has many more features, such as requiring fewer clicks to access product information or increasing the likelihood that a consumer will consider or select our listing. We paid extra for the placement to be "featured." We also found that the platform was even putting itself in the digital comparison versus our listing. 

Our Compliance Officer believes that we have become entangled in a steering scenario. She has met with management to get them to cancel the arrangement with the platform altogether. They are reluctant to cancel because they think she is exaggerating the risk. They get a lot of business from the leads generated from the comparison platform. 

I would like your view. You are always direct and abide by legal and regulatory guidelines. 

Do digital comparison platforms or lead generators cause potential regulatory violations by preferencing products or services based on financial or other benefits to the platform operator?

COMPLIANCE SOLUTION

Policies and Procedures

ANSWER 

Yes. The comparison platform may violate the prohibition on abusive acts or practices if they distort the shopping experience by steering consumers to certain products or services based on adjusted remuneration to the operator. And, to be clear, this is steering. If steering is implemented, it violates the Consumer Financial Protection Act (CFPA). 

Similarly, lead generators can violate the prohibition on abusive practices if they steer consumers to one participating financial services provider instead of another based on compensation received. It is often the case that consumers rely on a digital comparison platform or a lead generator to act in their interests. Unfortunately, however, it is also the case that platforms and lead generators may take unreasonable advantage of consumers by giving preferential treatment to their own or other products or services through steering or enhanced product placement for financial or other benefits. This way leads to UDAAP violations. 

My article, Pitfalls of Mortgage Comparison Platforms, focused on RESPA Section 8 violations triggered by referrals from rate comparison platforms. I noted the Consumer Financial Protection Bureau (CFPB) maintains that operators of online comparison platforms receive a prohibited referral fee when they use or present information in a way that steers consumers to mortgage lenders in exchange for a payment or something else of value. 

Another article I published, RESPA Section 8 Triggers on Mortgage Comparison Platforms, focused on several circumstances where digital mortgage comparison-shopping platforms may violate RESPA. 

For a wider view, you can read my article, Digital Mortgage Comparison Platforms, where I stated, among other things, that the CFPB appears to suggest 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. 

You may want to read the aforementioned articles in the context of my response to your question about preferencing products and services on a digital comparison platform. Your use of the verb "preferencing" is correct because the CFPB uses this word to flag steering! 

At its core, preferencing involves compensation arrangements associated with digital comparison platforms.[i] Loan product providers pay some platforms on a fee-per-action basis (i.e., by receiving fees per click, per application, per conversion, per offer, or per sale). Often, the platform may allow firms to bid against each other for advantageous placement by paying "bounties," which target consumers fitting certain consumer characteristics or aimed at meeting certain volume goals. 

Lead generators sell consumer information to lenders. Sometimes, they provide this service without contacting the consumer. But, regulatory concerns grow when these entities collect data directly from consumers by advertising websites that present themselves as helping consumers get a loan or connect with lenders. There has been plenty of litigation in this area, such as in Federal Trade Commission v ITMedia Solutions, LLC.[ii] The complaint alleged that the lead generator "unlawfully used a 'loan application' form to collect consumers' information by deceptively presenting itself as connecting consumers with lenders.”[iii] 

If you want a basic guideline, here it is:

You must protect and facilitate the consumers' ability to effectively compare and choose among options for consumer financial products or services. If you are not doing so or involving yourself in arrangements that contravene this guideline, you are exposing yourself to regulatory violations. 

Indeed, this guideline is a foundational, statutory objective of the CFPB.[iv] Consider it a mandate. The CFPA legislative history states that an important purpose of the CFPB is to ensure that "a consumer can shop and compare products based on quality, price, and convenience without having to worry about getting trapped by the fine print into an abusive deal."[v] 

As I noted above, unreasonable advantage is tantamount to a threshold issue implicating UDAAP.[vi] So, let's describe this concept in the context of digital comparison platforms and lead generators:

These entities leverage consumer reliance to take unreasonable advantage of consumers where they preference particular providers or products over others in exchange for financial or other benefits to the operator, as opposed to making presentations or lead distribution decisions using other factors not relating to the platform operator's or lead generator's relative compensation from different providers, including where consumers put reasonable reliance on the entity to act in accordance with consumers' interest.[vii] 

The phrase "reasonable reliance" and "consumers' interest" can mean many things. Litigation often turns on the interpretation of these terms. However, a growing body of federal agency guidelines and case law has pretty much determined their regulatory parameters. Once a comparison platform or lead generator puts itself into a position to assist people in selecting a provider, the door opens to consumer reliance. The entities’ representations and communications can be explicit or implicit. 

For instance, reasonable consumer reliance may exist when a platform or lead generator assumes the role of acting on consumers' behalf or helping them select products or services based on consumers' interests.[viii] If you visit digital comparison platforms, you may see that some of them "match" consumers to specific products and services, whether done by automated algorithms, artificial intelligence, or curated recommendations. 

Some lead generators promote themselves as intermediaries between themselves and well-known financial institutions. That in itself can engender consumer reliance[ix] because their real, market-enterprising role may be hidden by presenting themselves as a tool for consumers to connect with trusted lenders or receive the best available terms for a consumer financial product or service. This means of contact with the public, given the consumer's individual circumstances, may lead the consumer to reasonably rely on the entity to act in the consumer's interests.[x] 

Here's a brief explanation of how a comparison platform or lead generator explicitly or implicitly engenders consumer reliance:

If a comparison platform or lead generator explicitly or implicitly holds out its services as presenting information based on a consumer's interests, it may be reasonable for the consumer to rely on the service to respond accordingly. 

I have seen comparison platforms openly stating that their service is "objective!" Now, that may be so, or it may not, but the service certainly claims it to be so – and that is sufficient for explicitly engendering consumer reliance. 

In fact, even if the platform does not openly state its service is objective, it may use certain words or phrases that implicitly engender consumer reliance, such as using the word "expertise" in helping consumers evaluate options; describing their service as providing "research-based" rankings of options for consumers; stating that they will "help you today" to "achieve your financial goals"; purporting to match consumers with the "best" or "right" offers; claiming to "put consumers first;" or providing a "one stop shop" claiming all the information consumers need to make informed selections among potential providers.[xi] 

To expand on the aforementioned "consumers’ interest” stated in my description of unreasonable advantage, comparison platforms and lead generators may adjust their presentations of consumer products and services based on fees or other benefits that are not in a consumer’s interest. These adjustments occurring in digital comparison platforms and lead generators are a form of steering. There is a significant body of law, federal agency guidelines, and consumer disclosure regulations that have concluded consumers’ interests are not served when consumers are steered toward more expensive or less favorable products, and would be the case when those products are offered by digital comparison platforms and lead generators (or their affiliates) where those products generate more revenue for these entities.[xii]

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 

Lenders Compliance Group

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[i] Preferencing and Steering Practices by Digital Intermediaries for Consumer Financial Products or Services, Intermediaries for Consumer Financial Products or Services, Consumer Financial Protection Circular 2024–01, Consumer Financial Projection Bureau, 12 CFR Part X, FR: Vol. 89, No. 49, March 12, 2024 (Rules and Regulations 17706-17709)

[ii] Federal Trade Commission v. ITMedia Solutions LLC et al., FTC Matter/File Number 1523225, Civil Action Number 2:16-cv-09483, C.D. Cal. January 5, 2022 (Complaint and Order)

[iii] Idem

[iv] Under the CFPA, a central purpose of the CFPB is to promote ‘‘fair, transparent, and competitive’’ markets. See 12 USC 5511(a).

[v] S. Rep. No. 111–176, at 11, 229 (2010).

[vi] There are violation triggers in many other prongs of the abusive prohibition, such as under 12 U.S.C. 5531(d), 12 U.S.C. 5531 and 5536(a)(1)(B)’s prohibitions against unfair or deceptive acts or practices, or other Federal, State, or local laws.

[vii] See 12 U.S.C. 5531(d)(2)(C), and generally, Policy Statement on Abusive Acts or Practices, April 3, 2023, Consumer Financial Protection Bureau

[viii] Idem

[ix] See CFPA § 2031 (d)(2)(C)

[x] Op. cit. i., Reasonable Reliance, at 17708

[xi] Op. cit. ii

[xii] See, i.e., FTC v. Blue Global, LLC, No. 2:17–cv–2117, D. Ariz. July 3, 2017. Blue Global collected loan applications and promised to match consumers with loans that had the best interest rates, finance charges, and repayment periods when, in fact, they indiscriminately sold leads.