The Consumer Financial Protection Bureau (CFPB) on Tuesday issued an advisory opinion it says will protect Americans from double dealing on digital mortgage comparison-shopping platforms.
The CFPB said companies that operate these digital platforms appear to shoppers as though they provide objective lender comparisons, “but may illegally refer people to only those lenders paying referral fees.”
According to the CFPB, 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 outlines how companies violate the federal Real Estate Settlement Procedures Act (RESPA) by steering shoppers to lenders by using pay-to-play tactics rather than providing comprehensive and objective information.
“Given the rise in mortgage interest rates, it is even more important for homebuyers to shop and compare loan offers,” CFPB Director Rohit Chopra said in comments issued along with the opinion. “We are working to ensure that online platforms are not manipulating their search results in order to coerce kickbacks from lenders.”
The 27-page advisory opinion does not cite any digital platform by name, but it notes that with the rise in mortgage rates over the past year, consumers are turning to comparison-shopping platforms and mobile apps to find the best deals.
“Many of the websites and applications claim to offer ranked lists of providers suitable to the individual consumer’s needs,” the CFPB states. “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, it is illegal for companies and individuals — including digital comparison-shopping platforms — to receive kickbacks and referral fees from a transaction involving a residential mortgage or other real estate settlement service, the CFPB notes. “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,” the CFPB states.
The agency said the advisory opinion seeks to assist law-abiding companies to comply with existing law, and does not create any new requirements. Instead, it intends to offer clarity on how firms can navigate issues associated with digital mortgage comparison-shopping platforms. It describes how companies might violate RESPA, and potentially other laws, if they “coerce payments from mortgage professionals, unlawfully steer consumers, or engage in other illegal referral activities.”,
Those illegal referral activities may include:
- 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 its 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 consumer.
- 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 providers in which the operator has a financial stake. In this case, the consumer 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 transferred authority for RESPA to the CFPB from the U.S. Department of Housing and Urban Development (HUD, CFPB said.
The agency said its advisory opinion supplements guidance HUD provided in 1996 on early versions of comparison-shopping platforms, which the CFPB continues to apply. The agency said it will enforce RESPA to protect consumers and ensure “a robust, competitive mortgage market. “
The advisory opinion also follows a set of Frequently Asked Questions regarding RESPA published in 2020 to help entities understand their obligations under current law, the CFPB said.
