Homebuying, refinancing, or cashing out equity can be grueling processes with tens of thousands of dollars on the line. Over the last year, mortgage interest rates have increased rapidly, adding to the stress of homebuying. Given these higher rates, it has become more important than ever for Americans to shop and compare products.
People often turn to purportedly objective and unbiased comparison-shopping platforms for help finding the best lender or service provider. But sometimes, these platforms produce results that are rigged.
Today, the CFPB is taking steps to protect people using digital mortgage comparison-shopping platforms. Instead of being neutral referees, some of these platforms extract illegal kickbacks to steer shoppers towards more expensive or lower quality lenders.
Digital Shopping Platforms for Mortgages
Comparison-shopping platforms have exploded into multiple markets including insurance, travel, and banking. In theory, they give consumers an opportunity to benefit from free-market competition – by presenting what competitors have to offer and then letting the consumer decide the option that is best for them. When designed and operated legally, these platforms provide a valuable service and help consumers make sound financial decisions.
But in practice, the game is sometimes rigged when companies that operate comparison-shopping platforms coerce payments to skew the offers presented to consumers instead of acting as fair referees. With digital mortgage comparison-shopping platforms, payments extracted from providers for steering shoppers are prohibited by the Real Estate Settlement Procedures Act (RESPA) – in contrast to payments for the service of including providers on a comparison-shopping platform that follows the law.
Currently, many mortgage shoppers are at risk of being manipulated by comparison-shopping platforms. In some cases, in spite of the platforms claiming to provide neutral information about what provider best suits the consumer’s needs, their interaction with a platform results in little, if any, personalization – under the guise of neutrality, they are just presented with a list of companies from which the platform operators extracted the requisite kickbacks. Other times, the platforms may preference companies they have a financial stake in without acknowledging the conflict of interest. Platforms sometimes will also simply hand off a shopper to the highest bidder – telling the shopper this company is their best option or that they are in good hands.
Thanks to these unlawful schemes, consumers may face higher prices, be set up to pay thousands of additional dollars in interest, and unwittingly participate in a market that is anti-competitive. But these schemes hurt mortgage lenders, brokers, and loan officers too. In fact, the CFPB often receives complaints about RESPA violations from mortgage professionals. Honest mortgage professionals shouldn’t feel that middlemen get to extort fees for them to be able to compete and have their mortgage offerings seen by consumers.
Longstanding Rules Still Apply Today
In 1996, the Department of Housing and Urban Development (HUD) issued a policy statement on what HUD then called computer loan origination systems (CLOs). HUD used the CLO moniker as a blanket term for digital platforms that help consumers choose a product or service related to certain real estate transactions. Anticipating the evolution of technology and product development, HUD stated that this term was flexible and not exhaustively defined.
Importantly, the policy statement clarified that referral fees paid to CLOs – referred to here as digital platforms – to unfairly advantage one company over another, which could increase closing and settlement costs, are illegal. The statement was issued under HUD’s authority to implement RESPA, which was passed by Congress in 1974 to ban kickbacks that increase mortgage costs and to ensure consumers are made aware of their settlement costs.
Digital Platforms Must Play by the Rules
Today’s action supplements the longstanding HUD policy, and it provides clearer guidance to operators of mortgage comparison-shopping platforms about how prohibitions under existing law apply in the digital era.
Specifically, the platforms cannot receive payments for presenting lenders and other service providers who participate on their platforms in a non-neutral way. That means platforms cannot preference lenders through kickbacks. Nor can platforms use pay-to-play tactics to manipulate their internal formulas or algorithms to steer consumers toward certain service providers.
The CFPB’s action to rein in the manipulation of digital mortgage comparison-shopping platforms is part of a broader all-of-government effort to end the illegal biasing of ostensibly neutral platforms.1 As part of this effort, the CFPB has also taken action to combat fake reviews on digital platforms. In March 2022, the CFPB issued policy guidance that companies posting fake reviews may violate the Consumer Financial Protection Act (CFPA). Specifically, publishing fake reviews, including sham-positive reviews, or falsifying customer ratings may be a violation of the CFPA or other laws.
Regulators have already taken action against companies for similar offenses. In 2020, the FTC with an operator of a consumer loan comparison-shopping platform for deceptive conduct under the FTC Act. The operator’s conduct involved both fake reviews and pay-to-play steering of consumers to platform participants. If similar conduct is observed in the mortgage market, the CFPB will not hesitate to act.
Today’s announcement complements the CFPB’s efforts to ensure the mortgage market remains resilient and competitive, particularly in the current rate environment. The CFPB will build on its work by looking more closely at how to spur more mortgage modifications and refinancing as market conditions change.
- On February 1, 2023, the National Telecommunications and Information Administration (NTIA) to boost competition in mobile app markets. Similar to digital mortgage comparison-shopping platforms, mobile app stores act as marketplace platforms that are vulnerable to self-preferencing and manipulation. The NTIA recommended several policy changes, including requiring that the two main mobile app store operators, Apple and Google, cease self-preferencing their own apps by manipulating search or other ranking functionality or discriminating between their apps and similar competing apps.