Continuing an investigation that began more than two years ago, the Consumer Financial Protection Bureau (CFPB) is investigating Zillow Group’s compliance with the Real Estate Settlement Procedures Act (RESPA).
Under the rules of RESPA, lenders, mortgage brokers and servicers of home loans are required to provide borrowers with all relevant and timely disclosures regarding the cost and procedures of the real estate settlement process. In addition, RESPA prohibits such practices as ‘kickbacks’ and restricts the use of escrow accounts.
For lenders, an outstanding question relevant to the Zillow investigation is whether or not allowing real estate agents or loan officers to ‘co-market’ on Zillow Group applications or websites constitutes a possible RESPA violation.
Zillow has acknowledged that the CFPB is still considering whether or not to take legal action alleging violation of RESPA and the Consumer Financial Protection Act.
For its part, Zillow continues to claim it is in full compliance with RESPA, particularly as it pertains to its co-marketing program, in which a lender pays the company to appear in advertising alongside a real estate agent; the company added that it is fully cooperating with the CFPB’s investigation.
Recently, during the company’s earnings call, Zillow’s Chief Financial Officer explained that “co-marketing between agents and lenders is a long-standing practice throughout the real estate and mortgage industries.” Kathleen Philips added that “lenders and agents have jointly advertised through direct mail and outdoor advertising for decades; regulators historically have provided guidance to ensure that this type of advertising works to the benefit of consumers.”
Philips added that Zillow’s digital co-marketing program enables “Premier Agents” and mortgage lenders with whom they have working relationships to advertise together on Zillow Group apps and websites, and is designed for consumers to have another easy way to connect with agents and lenders.
Of course, the Zillow investigation also raises many questions and concerns for lenders. As a leading online site for real estate listings, lenders often turn to Zillow for potential leads; still, Zillow executives insist that the company’s primary mandate is to serve consumers’ interests, and that it supports RESPA and the intent behind the law.
However, in its quarterly report, Zillow admits that the ultimate outcome of the CFPB investigation remains uncertain. In its latest quarterly report, Zillow stated that “we cannot provide assurance that the CFPB will not ultimately commence a legal action against us in this matter, nor are we able to predict the likely outcome of the investigation into this matter”, adding that “we do not believe a loss (to the company) is probable.”
Specifically addressing the concerns of the lending community, Zillow CFO Philips stated that “we believe our co-marketing program has, and continues to, allow agents and lenders to comply with the law while using our product.”
Ironically, while the CFPB investigation of Zillow is ongoing, the bureau’s own future may be in doubt.
Both the Trump Administration, as well as the Republican leadership in the new Congress, have suggested there will be efforts made to replace the Dodd-Frank Act that initially established the CFPB. While it remains unclear at this point whether the entire Dodd-Frank bill will be replaced, the CFPB has long been seen as a target by the harshest critics of the bill; consumer advocate groups are pushing back against any efforts to “take the teeth” out of the Dodd-Frank bill, and believe that the CFPB is a critical component of the Wall Street reform bill.
Ultimately, the outcome of the CFPB investigation of Zillow has the potential to affect co-marketing programs beyond that of Zillow’s; while the future of the investigation—and perhaps the CFPB itself—remain unknown, what is certain is that the nation’s lenders will be closely monitoring the future of both.
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