Can online lead generation be done compliantly under Section 8
of the Real Estate Settlement Procedures Act (“RESPA”)?
The answer is yes, but it is important to navigate the
impermissible activities recently identified by the Consumer
Financial Protection Bureau (“CFPB”). On February 7,
2023, the CFPB issued long-awaited guidance in an advisory opinion
addressing how it interprets RESPA and its implementing regulation,
Regulation X, in the context of digital marketing and lead
generation platforms for real estate settlement
services.1 These comparison platforms allow consumers to
search for and compare options for settlement services. If
consumers input contact information as part of their search, the
platform operator may share or sell this information to settlement
service providers. This guidance, the first issued by the CFPB on
online lead generation, highlights several key compliance
considerations for participants engaging in digital marketing of
settlement services.
Generally, Section 8 of RESPA and Regulation X prohibit giving
or accepting any fee, kickback, or thing of value pursuant to an
agreement or understanding in exchange for the referral of a real
estate settlement service involving a federally related mortgage
loan. The law, however, exempts fair market value payments for
actual goods or services provided. As online lead generation
activities have become a prominent customer acquisition tool over
the past several years, industry participants have sought guidance
on whether certain platforms and compensation structures constitute
an impermissible referral under RESPA. Prior to this advisory
opinion, the last guidance on which online lead generators could
rely was a 1996 Statement of Policy by the US Department of Housing
and Urban Development (“HUD”)2 on computer
loan origination systems (“CLOs”). However, given the
advancement of technology and the capabilities of online lead
generation platforms, applying this HUD guidance to today’s
activities has been a challenging endeavor. In addition, it has
been unclear whether the CFPB would defer to HUD’s 1996
interpretation, as well as to informal advisory opinions issued by
HUD in the 1980s and 1990s related to lead
generation.3
With this recent advisory opinion, the CFPB confirms that the
1996 Statement of Policy applies to online/digital
comparison-shopping platforms, as a type of CLO. In addition to
stating that online comparison platforms should follow the guidance
outlined in the 1996 Statement of Policy, the advisory opinion
makes two major points about the CFPB’s interpretation of
RESPA. First, the CFPB interprets RESPA as prohibiting the use or
presentation of information about one or more settlement service
providers participating in an online comparison platform in a
non-neutral way if (i) that non-neutral use or presentation has the
effect of steering the consumer to use, or otherwise affirmatively
influencing the consumer to select, a settlement service provider,
thus constituting referral activity, and (ii) the platform operator
receives a payment or other thing of value that is, at least in
part, for that referral activity. Second, if the operator of a
comparison platform receives a higher fee for including one
settlement service provider compared to the fee received from
another provider, the higher payment can be evidence of an illegal
referral fee arrangement in the absence of other facts
indicating the payment is not for enhanced placement or another
form of steering. Importantly, through this advisory opinion, the
CFPB affirms that online lead generation that neutrally uses and
presents information is a service or facility that settlement
service providers can legally pay for under RESPA.
The advisory opinion focuses on the conduct the CFPB believes is
a violation of RESPA. The CFPB finds that by presenting or using
information in a non-neutral way, a platform operator refers a
consumer by steering or affirmatively influencing the consumer to
use a particular provider. If a settlement service provider
receives enhanced, non-neutral placement on a platform, the CFPB
presumes there is an agreement or understanding for the referral.
If the platform is compensated for this activity, the CFPB says the
payment is not for compensable services permitted under RESPA but,
rather, for impermissible referrals.
The CFPB provides several examples of online lead generation
conduct that may violate RESPA:
- Boosting the rankings of providers that pay more to participate
on the platform by skewing the results of consumer-generated
comparison functions,4 such as by excluding or placing
low weight on purportedly objective comparison criteria that would
otherwise favor a lower-paying provider. - Manipulating rankings to place affiliates of the platform
operator higher than non-affiliated providers in exchange for
payment. - Manipulating formulas that purport to take consumer preferences
into account but instead failing to honor the consumer’s
preferences or placing weight on inaccurate information about a
particular provider(s). - Presenting providers in a biased way, such as by only providing
weblinks for higher-paying providers or listing only higher-paying
providers by interest rate on the first page of results (making it
appear that all providers have been listed by interest rate) and
only listing lower-paying providers that may have interest rates
equal to or lower than higher-paying providers on subsequent
pages. - Allowing a consumer to generate ranked options and then
segregating and highlighting a top-ranked provider while presenting
other providers less prominently in exchange for a higher fee if
the consumer clicks on the top-ranked provider. - Labeling a provider as “sponsored” or
“featured” because the provider has paid for enhanced
placement but designing the platform and displaying the provider in
a manner that implies that provider earned that placement based on
neutral criteria. - Listing a provider that paid for enhanced placement multiple
times in the rankings, using either the same name or an affiliated
name. - After a consumer runs an initial comparison, showing only the
top-ranked provider when the consumer revisits the platform. - Allowing a consumer to input information to generate rankings
but permitting all providers participating on the platform to take
turns appearing in the top spot, either randomly or on a
predetermined schedule, generating rankings that are not based on
the information input by the consumer. - After a consumer has input criteria that generates a neutral
ranking, sending the consumer a text message or email that
encourages the consumer to submit an application to a particular
provider because the provider will be a good fit for the
consumer’s needs. - After a consumer inputs information specific to the
consumer’s needs, such as credit score or loan amount,
transferring the consumer (either by phone or live chat) to a
particular provider with a message stating that the consumer will
be “in good hands” when, in fact, the provider is merely
the first to respond to the platform operator’s alert about an
available consumer and not based on whether the provider can meet
the consumer’s specified needs.
These examples highlight the fact-specific nature of RESPA
compliance. But they do not close the door on the operation of (and
payment to) a digital comparison-shopping platform that complies
with RESPA. Settlement service providers and operators of
comparison platforms may wish to reevaluate relevant agreements and
activities in light of this new guidance and carefully consider it
when entering into new agreements and activities in the future.
Mayer Brown is available to assist with any questions businesses
may have about this advisory opinion and compliance with RESPA
generally.
Footnotes
1. CFPB, Advisory Opinion, Real Estate Settlement
Procedures Act (Regulation X); Digital Mortgage Comparison-Shopping
Platforms and Related Payments to Operators, 88 Fed. Reg. 9,162
(Feb. 13, 2023).
2. HUD, Statement of Policy 1996-1: Computer Loan
Origination Systems (CLOs), 61 Fed. Reg. 29,255 (June 7, 1996). HUD
enforced RESPA and Regulation X prior to the CFPB’s
existence.
3. See, e.g., HUD Advisory Letter from Grant E. Mitchell,
dated March 24, 1994; HUD Advisory Letter from Grant E. Mitchell,
dated January 26, 1989; HUD Advisory Letter from Grant E. Mitchell,
dated May 31, 1985.
4. The CFPB also noted that this conduct could be a
deceptive misrepresentation in violation of the Consumer Financial
Protection Act, particularly if the platform contains
misrepresentations about the accuracy of the
information.
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