CFPB Issues Guidance on ‘Pay to Play’ Digital Comparison-Shopping Platforms

The Consumer Financial Protection Bureau on Tuesday issued an advisory opinion aimed at digital mortgage comparison-shopping platforms.

The Bureau said some companies operating these digital platforms appear to shoppers as if they provide objective lender comparisons, but may illegally refer people to only those lenders paying referral fees. It said when shoppers use a lender that is not the best option for their needs, they could end up with a lower quality lender or paying thousands more in closing costs or interest.

“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.”

The advisory opinion outlines how companies violate the Real Estate Settlement Procedures Act when they steer shoppers to lenders by using pay-to-play tactics rather than providing shoppers with comprehensive and objective information. Under RESPA, it is 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,” the Bureau said.

In issuing the advisory opinion, the Bureau said it s”eeks to assist law-abiding companies to comply with existing law,” stating that it does not create any new requirements, but rather offers clarity on how firms can navigate issues associated with digital mortgage comparison-shopping platforms. It describes how these 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, including:

• 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 their 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 shopper.
• 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 use providers in which the operator has a financial stake. In this case, the shopper is unaware that the platform’s formula was potentially designed to steer them away from non-preferred providers.

The advisory opinion is Real Estate Settlement Procedures Act (Regulation X); Digital Mortgage Comparison-Shopping Platforms and Related Payments to Operators.