CFPB: Websites that claim mortgage lenders “compete for your business” likely break federal laws under RESPA if all the participating lenders pay a fee to be there.
WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) issued an advisory opinion to protect Americans from “double dealing on digital mortgage comparison-shopping platforms.”
If consumers go to a website that offers to compare mortgages and find them the best deal, it may violate the Real Estate Settlement Procedures Act (RESPA) if it only compares mortgage lenders that pay a fee to be included.
The advisory – Real Estate Settlement Procedures Act (Regulation X); Digital Mortgage Comparison-Shopping Platforms and Related Payments to Operators – finds that fee-only websites might set a buyer up with a lower-quality lender. Buyers may also end up paying thousands of dollars more in closing costs or interest than they could have.
According to the advisory opinion, the comparison companies violate RESPA by using pay-to-play tactics, rather than providing buyers with comprehensive and objective information.
“Given the rise in mortgage interest rates, it is even more important for homebuyers to shop and compare loan offers,” says 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.”
How it works: People looking for their best mortgage deal often turn to comparison-shopping platforms and mobile apps that claim to offer ranked lists of providers based on the individual consumer’s needs. Buyers provide their personal data to get access or run a customized search, and reasonably expect a neutral and fair list of providers that may best meet their mortgage or other settlement needs.
Why it might be illegal: Under RESPA, it’s illegal for companies and individuals, including digital comparison-shopping platforms, to receive kickbacks and referral fees in connection with a transaction involving a residential mortgage or other real estate settlement service. 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.
Not all mortgage-comparison websites violate RESPA, and CFPB didn’t suggest how many might do so – of if any do so.
The advisory opinion, CFPB claims, will also help law-abiding companies comply with existing law. It doesn’t create new requirements but offers clarity on how firms can navigate issues associated with digital mortgage comparison-shopping platforms.
Examples of mortgage-comparison practices that could violate RESPA
In general, the mortgage-comparison companies violate RESA 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: Results must be based on what’s best for buyers based on their information. It cannot, for example, present a lender as the best option because it pays the website the highest referral fee when the shopper is led to believe it was selected based on their shared personal data or preferences. In one variation, comparison-shopping platforms may receive payments to rotate lenders as the top option, regardless of whether the highlighted lender is the best fit for the shopper.
- Biasing the platform’s internal formula to favor preferred providers: A platform could include mortgage lenders who don’t pay a fee to be there, but the internal comparison software might be skewed to favor the lenders that do pay a fee. In this case, the shopper is unaware the formula was 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 Department of Housing and Urban Development (HUD). The latest advisory opinion supplements guidance HUD provided in 1996 on early versions of comparison-shopping platforms, which the CFPB continues to apply. CFPB offers a list of Frequently Asked Questions regarding RESPA on its website.
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