CFPB Warns Mortgage Comparison Sites of Making Illegal Referrals
Written By: Joel Palmer, Op-Ed Writer
The Consumer Financial Protection Bureau (CFPB) issued an advisory opinion that some mortgage-rate comparison websites may be operating in violation of federal mortgage lending laws.
At issue is whether these rate comparison websites and mobile apps violate Section 8 of the Real Estate Settlement Procedures Act (RESPA). CFPB contends that some companies may be in violation when they steer potential borrowers to lenders using “pay-to-play” tactics rather than providing 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.“ We are working to ensure that online platforms are not manipulating their search results in order to coerce kickbacks from lenders.”
“Many of the websites and applications claim to offer ranked lists of providers suitable to the individual consumer’s needs,” said the bureau in its press release. “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.”
CFPB noted that RESPA forbids companies and individuals to receive kickbacks and referral fees in connection with a transaction involving a residential mortgage or other real estate settlement service.
The bureau said the advisory does not add new requirements, but is designed to clarify how existing law applies to mortgage comparison platforms.
The bureau said these companies may violate RESPA and 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
Biasing the platform’s internal formula to favor preferred providers
One legal analysis of the advisory opinion pointed out that disclosures on the comparison platform are not enough to comply with the law.
It was pointed out that digital platforms can violate RESPA by:
Ensuring the best match for a mortgage query is the highest bidder.
Ranking lenders by rotation.
Favoring an affiliate.
Favoring a lender via text or email.
Offering to connect a consumer with a lender.
Another legal opinion questioned whether comparison mortgage platforms even fall under the definition of a settlement service.
The author of this opinion states that these sites and apps are not originating mortgages or performing origination services. They are simply advertising other lenders on these sites.
Furthermore, the sites offer more than one option from several lenders. If comparison sites fall under this definition, the same could be true for Google ads that appear at the top of an online search when borrowers input search terms related to mortgage rates.
The National Law Review noted that this advisory opinion is the first one issued since CFPB assumed authority of RESPA in 2011 from the Department of Housing and Urban Development (HUD). That transfer occurred as a result of The Consumer Financial Protection Act of 2010.
CFPB said its advisory supplements guidance HUD provided in 1996 on early versions of comparison-shopping platforms, which the bureau continues to apply.
“The CFPB will enforce RESPA to protect consumers and to ensure a robust, competitive mortgage market,” the bureau said in its statement.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
