CFPB Brings RESPA Section 8 Into the 21st Century with Digital Marketing Risk Advisory Advice // Cooley // Global Law Firm

On February 7, 2023, the Consumer Financial Protection Bureau issued a advice operators of digital mortgage comparison platforms are warning of specific practices that the bureau says violate Section 8 of the Real Estate Settlement Procedures Act (RESPA), which prohibits the payment of fees for real estate settlement referral services. The advice warns operators against presenting information on their platforms in a non-neutral manner or directing consumers to specific service providers based on the level of compensation received. Importantly, the CFPB indicates that some platform operators and their participating settlement service providers may currently be engaged in activities in violation of RESPA Section 8.

Overview of the advice

RESPA Section 8 prohibits businesses and individuals from receiving kickbacks and referral fees in connection with any transaction involving a residential mortgage or real estate settlement service. In this new advisory, the CFPB outlines a three-part test to determine whether a digital mortgage comparison platform is in violation of RESPA. Specifically, the CFPB indicates that an operator is violating RESPA when (1) the platform displays information about the settlement service provider to consumers in a “non-neutral manner”, (2) that presentation has the effect of affecting the consumer’s choice of the provider is positively influenced, and (3) the operator receives a payment or anything else of value that is, at least in part, for the referral activity. Importantly, the CFPB warns that disclosing on the platform the criteria regarding how the information is presented to consumers will not cure a RESPA violation if the operator’s practices otherwise meet every component of the CFPB test.

The advisory also provides a detailed set of hypothetical business practices that, according to the CFPB, may constitute prohibited referral activities and violate RESPA’s Section 8 prohibition. For example, the agency warns that ranking providers of settlement services, or presenting a service provider as the “best option” on the platform, based on fees received and regardless of consumer preferences, could violate RESPA. Presenting information about providers of settlement services in a different way than consumers, for example by using a larger font or including web links for providers that pay higher rates, in order to influence consumers’ choice of higher paying providers, could also may violate that prohibition.

Finally, the CFPB clarifies that digital marketing practices may also violate other federal or state financial protection laws, including the CFPB’s prohibition of unfair, deceptive, or abusive acts and practices, to the extent that consumers expect a neutral and fair comparison from providers on the platform, but are instead sent to providers that are not necessarily tailored to their needs.

What to expect?

One of the longstanding challenges in complying with RESPA’s Section 8 obligations is applying decades-old guidelines to emerging technologies (official RESPA commentary still refers to “fax transmission machines”). This advisory places compliance risks in the context of modern technologies and may require operators of digital marketing platforms to re-evaluate how information is presented on their websites, as well as existing classification methodology and fee structures with participating providers to ensure compliance with CFPB expectations. . Operators should also review any additional marketing services offered to lenders and settlement service providers, such as promotional activities or recommendations, to ensure that these services do not otherwise negate the neutral presentation of information to consumers. Participating lenders and settlement service providers should also review their arrangements with digital mortgage comparison platforms to reduce regulatory scrutiny.

While RESPA’s specific focus may be new, the legal importance of transparency and accuracy in advertising is not. Indeed, many of the principles in the advisory are consistent with the Federal Trade Commission’s Approval Guides, which originate in Section 5 of the Federal Trade Commission Act (Prohibiting Unfair or Deceptive Acts or Practices). Last year, the FTC suggested updates to those guides — which are still under consideration — to highlight, among other things, the roles and potential accountability of digital platforms, which the FTC says “should bear more responsibility.” This additional regulatory focus from the CFPB further highlights the close coordination between agencies – and the increased risk of non-compliance.