Digital mortgage shopping platforms could be violating the Real Estate Settlement Procedures Act's anti-kickback rules if they provide more prominent placement of a lender on their sites based on compensation rather than neutral decision criteria, the Consumer Financial Bureau said.
In an accompanying statement to the advisory opinion, CFPB Director Rohit Chopra cited a Federal Trade Commission settlement with
"The operator's conduct involved both fake reviews and pay-to-play steering of consumers to platform participants," Chopra said. "If similar conduct is observed in the mortgage market, the CFPB will not hesitate to act."
The regulator presents two specific instances that could make these providers subject to enforcement activities: presenting one or more service providers in a non-neutral way; and biasing the platform's internal formula to favor preferred providers.
"People often turn to purportedly objective and unbiased comparison-shopping platforms for help finding the best lender or service provider," Chopra said. "But sometimes, these platforms produce results that are rigged."
Chopra's statement pointed to a 1996 Department of Housing and Urban Development policy ruling that clarified that referral fees paid to what it then called "computerized loan origination systems" were a Section 8 violation, declaring those currently apply to today's sites.
"The advisory is a warning to digital marketing platforms of the potential consequences of business relationships with mortgage lenders," said Jonathan Pompan, a partner in Venable's Financial Services Practice group. "The CFPB has a direct sightline into the marketing activities of mortgage lenders through routine examinations, and has previously announced that digital marketers that are involved in the identification or selection of prospective customers or the selection or placement of content to affect consumer behavior are typically service providers for purposes of the law."
If anything, the CFPB's actions "muddies the water in terms of the difference between what is an advertisement and what is a referral," said Christopher Friedman, an attorney with Bradley Arant Boult Cummings. "The CFPB seems to take the position that simply presenting information to a consumer in a particular order is steering and because it's steering it constitutes a referral."
While a referral is one of the key elements in creating a Section 8 violation, the other is receipt of a thing of value such as a fee, creating a quid pro quo.
While payment for services actually rendered is permissible under Section 8, this opinion seems to state that exemption does not apply here, Friedman said.
As a result lenders do have some liability here because both the party that makes the referral and receives it can be held accountable under RESPA.
So the lender must be aware how the site they work with operates. "They need to understand whether or not their advertisers are using algorithms or other digital methods for determining how they as the lender show up on the advertiser's website," Friedman said. "So they need to do some diligence with their advertising partners."
However, for Stephen Ornstein, co-leader of Alston & Bird's consumer financial services team, for a mortgage marketing site to be in compliance, it has "a lot of hoops to jump through."
That illustrates a lot of problems with RESPA and Section 8, because "this is a 1974 statute and you're trying to fit a round peg into a square hole, in the sense that the drafters of RESPA didn't begin to envision the types of scenarios" that exist today, Ornstein said.
For many years, the mortgage industry complained about the
"When you have a statute that couldn't begin to envision the types of technologies and the way people advertise and market, I just think it's a mismatch," he said. "Section 8 needs to be really rethought."
National Mortgage News reached out to some of the more well-known shopping sites for comment. Depending on their individual model, on some sites lenders can pay
"The CFPB advisory on mortgage comparison shopping doesn't feel like a new issue, but rather a point of emphasis and a reminder of the importance of RESPA," LendingTree CEO Doug Lebda said in a statement. "I don't expect to see any impact on LendingTree's business as we are RESPA compliant," adding that lenders should compete on "a fair and level playing field."
But does such a level playing field exist on those sites?
Jack Guttentag, a professor emeritus at the Wharton School of the University of Pennsylvania, started the Mortgage Professor website largely out of his concerns regarding customer steering, said his partner Allan Redstone.
Guttentag's consumer advocacy regarding home lending included creating the
The Mortgage Professor site allows for apples-to-apples comparisons of its "certified network lenders" offerings, Redstone said. Those lenders need to meet certain criteria to participate.
Unlike other sites, other than agreeing to the terms for participation, no fee is required. Nor is the consumer charged for the service, Guttentag noted. It has separate sites for forward and reverse mortgage lenders; interestingly, it has more participation on the reverse lender site.
Any lender is free to join one or both sites by delivering the required price and qualification data daily, he said. Mortgage Professor has no other requirements for participation.
While not defending the other sites, some of which might be pursuing the acts cited by Chopra, Guttentag also added that none were identified, casting suspicion on all participants.
"That is not fair and it does not help consumers," Guttentag said. "I looked in vain for indications of what would constitute acceptable pricing rules and disclosures."
His rules cited above work, with "the only addition required is that any referral fees be posted and uniform across lenders," Guttentag said.
Several other lead generation sites declined to comment.
