Politics & MoneyMortgageReal Estate

CFPB pushes Zillow to settle on RESPA violations

Zillow gives update on investigation in 2Q earnings, recording 28% revenue growth

The Consumer Financial Protection Bureau concluded its investigation into whether or not Zillow violated Section 8 of the Real Estate Settlement Procedures Act and Section 1036 of the Consumer Financial Protection Act.

Zillow gave an update on the investigation during its earnings call on Tuesday, revealing the CFPB wants to discuss a settlement with Zillow.

According to the earnings release, “Based on correspondence from the CFPB in August 2017, we understand that it has concluded its investigation. The CFPB has invited us to discuss a possible settlement and indicated that it intends to pursue further action if those discussions do not result in a settlement.”

During the call, Kathleen Philips, Zillow chief financial officer, answered a question on the exact timing of the decision, saying, “We expect things to move quickly.” Philips added that she is actually about to head to Washington, D.C. in order to work with the bureau on a settlement and thinks that it will be a fast process.

However, Zillow noted that a settlement is not guaranteed. Philips stated that if it does turn into a regular legal procedure, the resolution would take more time.

Despite the CFPB’s conclusions in the investigation, Zillow still stands by its real estate practices. As noted in its first-quarter earnings call, Zillow said, “We continue to believe that our acts and practices are lawful and that our co-marketing program allows lenders and agents to comply with RESPA, and we will vigorously defend against any allegations to the contrary.”

As a refresher, here’s a snippet from Philips in Zillow’s first quarter 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

In April 2017, Zillow received a Civil Investigative Demand from the Consumer Financial Protection Bureau that requested information related to its March 2017 response to the CFPB’s February 2017 Notice and Opportunity to Respond and Advise (NORA) letter.

The letter stated that the bureau’s Office of Enforcement was considering whether to recommend that the CFPB take legal action against Zillow, alleging that it violated Section 8 of the RESPA and Section 1036 of CFPA.

Zillow added that the notice stemmed from an inquiry that commenced in 2015 when it received and responded to an initial Civil Investigative Demand from the CFPB.

Since a lot is still unknown in the case, Zillow cautioned that should the CFPB commence an action against it, the bureau may seek restitution, disgorgement, civil monetary penalties, injunctive relief or other corrective action.

“We cannot provide assurance that the CFPB will not commence a legal action against us in this matter, nor are we able to predict the likely outcome of any such action,” stated Zillow.

The CFPB declined to comment on the Zillow investigation.

For more information on what the CFPB RESPA investigation into Zillow means for the industry, check here.

Earnings highlights

Outside of the CFPB investigation, Zillow recorded a strong quarter, with its revenue increasing 28% year-over-year to $266.9 million.

Premier Agent Revenue also surged, growing 29% year-over-year to a record $189.7 million.

Zillow traffic also performed well, with traffic to Zillow Group brands' mobile apps and websites reaching an all-time high of more than 182 million unique users in May 2017.

Meanwhile, visits to Zillow Group brands' mobile apps and websites, including Zillow, Trulia, StreetEasy and RealEstate.com, increased 17% year-over-year to nearly 1.7 billion in the second quarter of 2017.

Notably, mortgage revenue increased 14% to $20.9 million from $18.4 million in the second quarter of 2016. Average revenue per loan information request increased 56% year-over-year.

Mortgage revenue primarily includes marketing products sold to mortgage professionals on a cost per lead basis.

"Zillow Group finished the first half of 2017 with another quarter of record revenue and traffic, further solidifying our foundation for long-term growth," said Zillow Group CEO Spencer Rascoff. "Our growing consumer audience is increasingly engaged and we achieved revenue growth across all of our emerging marketplaces. As we continue to expand our suite of marketing and technology solutions to help our industry partners achieve long-term success, we're excited about the opportunities in front of us."

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