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What does the renewed CFPB RESPA investigation into Zillow mean for our industry?

In the end, no one can predict the CFPB

With a steady stream of enforcement actions and regulations coming out of the Consumer Financial Protection Bureau over the years, the industry doesn’t take the possible threat of getting a violation lightly.

And one big company currently drumming up a lot of questions for lenders is Zillow.

As one of the top online site for real estate listings, the website offers a lot of potential leads for lenders.

But due to a new investigation from the CFPB into Zillow, lenders are left wondering what they should do.

Zillow Chief Financial Officer Kathleen Philips explained the situation in the company’s earnings call:

One of the features of our platform that some Premier Agents use is our co-marketing program. Comarketing between agents and lenders is a long-standing practice throughout the real estate and mortgage industries. For example, 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. 

 Our 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. Over the past two years, the Consumer Financial Protection Bureau, or CFPB, has been reviewing our program for compliance with the Real Estate Settlement Procedures Act, or RESPA, which is a regulation designed to protect consumers

Philips added that Zillow believes wholeheartedly in the consumer protection mission of the CFPB.

She also emphasized that Zillow Group was founded, and operates on, a philosophy that the consumer comes first in all decisions.

“We also believe that RESPA is an important law designed to protect consumers and, among other things, promote transparency in the home buying process,” said Philips.  

In its latest earnings, Zillow admits it can not fully predict the potential impact a CFPB ruling could put on its operations:

“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…. we do not believe a loss is probable,” Zillow said in its latest quarterly report.

“There is a reasonable possibility that a loss may be incurred; however, the possible loss or range of loss is not estimable,” they add.

While the investigation has been going on for two years, the reason behind this latest disclosure is that the CFPB requested additional information and documents from Zillow as part of their evaluation.

Despite the added request, Philips said, “We believe our co-marketing program has, and continues to, allow agents and lenders to comply with the law while using our product.”

Ballard Spahr attorney Richard Andreano explained the case in a blog post in the Consumer Finance Monitor. He further expanded on it in an interview with HousingWire to help show what the investigation could mean for the industry.

“A CFPB investigation is just that—an investigation.  It does not reflect that the CFPB has reached any conclusions regarding the Zillow co-marketing arrangements under RESPA,” he explained.

However, he added, “The industry knows that the CFPB is not a fan of marketing arrangements, with the October 2015 CFPB bulletin on such arrangements reflecting various CFPB concerns.  As a result, the news of the investigation will likely cause many industry members reassess Zillow and other marketing arrangements.”

He also noted that while the investigation has ben ongoing for two years and the bureau just requested for more information, CFPB investigations have taken a period of years in the past, meaning this new announcement doesn’t necessarily mean a decision is imminent. 

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