Welcome To Internet And Mobile Marketing: HUD's 1996 RESPA CLO Policy Statement Finally Refreshed

• Jurisdiction: United States,Federal
• Law Firm: Blank Rome LLP
• Subject Matter: Finance and Banking, Media, Telecoms, IT, Entertainment, Real Estate and Construction, Charges, Mortgages, Indemnities, Financial Services, IT and Internet, Advertising, Marketing & Branding, Real Estate
• Author: Mr R. Colgate Selden, R. Andrew Arculin, Scott D. Samlin, Paula Vigo Marques and Daniel Funaro
• Published date: 07 March 2023

A new Consumer Financial Protection Bureau ("CFPB") advisory opinion refreshes the Department of Housing and Urban Development's computer loan origination system policy statement for a new generation of online marketing technology, specifically targeting the policy to "operators of certain digital technology platforms" that function via website and online applications. These "Digital Mortgage Comparison-Shopping Platforms," as described by the CFPB, "enable consumers to comparison shop for mortgages and other real estate settlement services, and include platforms that generate potential leads for platform participants through consumer interactions."

The CFPB advisory opinion applies long standing interpretations on unlawful referrals to new online marketing technology platforms. However, even if such platforms are permissible under a referral analysis, they still could violate prohibitions on unfair, deceptive, or abusive acts or practices and other federal and state laws. The advisory also functions to put the industry on notice for future enforcement actions should operators of noncompliant marketing platforms not heed the guidance in the advisory.

Background

After nearly 30 years, the CFPB issued an advisory opinion ("CFPB Opinion")¹ last week picking up where the Department of Housing and Urban Development ("HUD") left off in 1996 with its policy statement on computer loan origination systems ("CLOs").² The HUD policy statement, which addressed the applicability of the Real Estate Settlement Procedures Act's ("RESPA")³ Section 8 prohibition on kickbacks in exchange for settlement service business referrals to CLOs, was drafted at a time when CLOs often consisted of a lender's Internet dial-up computer kiosk located in a real estate broker or other settlement service provider's office.

In a statement accompanying the release of the CFPB Opinion, Director Chopra noted "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. As part of this effort, the CFPB has also taken action to combat fake reviews on digital platforms."⁴ In the CFPB's press release for the Opinion, Director Chopra also stated that "given the rise in mortgage interest rates, it is even more important for homebuyers to shop and compare loan offers ... We are working to ensure that online platforms are not manipulating their search results in order to coerce kickbacks from lenders."⁵

Regarding potential RESPA Section 8 violations, the CFPB Opinion advises that "an operator of a Digital Mortgage Comparison-Shopping Platform receives a prohibited referral fee in violation of RESPA Section 8 when:

1. the Digital Mortgage Comparison-Shopping Platform non-neutrally uses or presents information about one or more settlement service providers participating on the platform;
2. that non-neutral use or presentation of information has the effect of steering the consumer to use, or otherwise affirmatively influences the selection of, those settlement service providers, thus constituting referral activity; and
3. the operator receives a payment or other thing of value that is, at least in part, for that referral activity."

Further, the CFPB Opinion states that if a Digital Mortgage Comparison-Shopping Platform is receiving higher fees for including one settlement service provider compared to what it would receive if it includes others on the same platform, "that can be evidence of an illegal referral fee arrangement absent other facts" showing the higher payment is not for "enhanced placement or other form[s] of steering."

The CFPB does not provide a comprehensive definition of "non-neutral" presentation but includes several indicators of such presentations. Additionally, the CFPB notes that "by non-neutrally using or presenting information, the Operator impedes the consumer's ability to engage in meaningful comparison," instead preferencing certain "options for reasons other than ... neutral criteria such as APR, objective consumer satisfaction information, or factors the consumer selects for themselves."

RESPA Overview

RESPA Section 8(a) generally prohibits: (1) the payment or receipt of a (2) thing of value pursuant to an agreement or understanding⁶ in exchange for (3) the referral of (4) settlement service business. All four elements of this prohibition must be present for a Section 8 violation. RESPA is not a price setting statute⁷ and advertisements generally directed to a broader audience,⁸ not to a particular consumer, typically are not analyzed for referral consideration. Further, the statute provides a safe harbor for payments at market rates for non-referral services actually performed.⁹ For example, regulators have long-recognized that payments for "leads" or customer lists (absent direct referrals) are a legitimate payment for services, and HUD issued an advisory letter confirming that interpretation.¹⁰ However, regulators have been equally clear that payment for a referral is not a bona fide service that fits within this safe harbor.¹¹

Much of the uncertainty when analyzing a given situation revolves around whether a "referral" occurred and whether any payment made was for such a referral or for an actual service that is compensable.¹² Referrals are deemed to have no compensable value for RESPA Section 8 purposes.¹³ Regulation X, the implementing Regulation of RESPA, essentially defines a referral as an "action directed to a person that has the effect of affirmatively influencing" that person's selection of and payment for a settlement service or business incident to that service.¹⁴ A referral also occurs if a person is "required to use" a particular settlement service provider.¹⁵

CFPB...