Real EstateRegulatory

CFPB still pushes Zillow to settle RESPA claims; real estate agent business remains steady

"Have not yet come to a mutually agreeable settlement"

After first revealing the news earlier this year, Zillow still hasn’t come to an agreement with the Consumer Financial Protection Bureau over possible violations of the Real Estate Settlement Procedures Act (RESPA).

During the company’s third-quarter earnings call, it said it continues to have ongoing discussion with the bureau related to a possible settlement concerning their investigation.

However, Kathleen Philips, Zillow chief financial officer, said in her prepared remarks that they have not yet come to a mutually agreeable settlement. 

And turns out, it’s not significantly impacting business. 

The issue dates back nearly two years and hit a turning point earlier this year when Zillow received a Civil Investigative Demand from the bureau.

The CID requested information related to Zillow’s March 2017 response to the CFPB’s February 2017 Notice and Opportunity to Respond and Advise (“NORA”) letter.

The letter notified Zillow that the CFPB’s Office of Enforcement is considering whether to recommend that the CFPB take legal action against it, alleging that it violated Section 8 of RESPA and Section 1036 of the Consumer Financial Protection Act.

The CFPB’s concerns are related to Zillow’s co-marketing program under which a lender pays Zillow to appear in advertising alongside a real estate agent.

Zillow has adamantly denied any allegations that it violated RESPA, saying they believe they are in full compliance.

In the latest earnings call, Philips reiterated this, saying, “As a reminder, the CFPB has indicated that if a settlement is not reached, they may pursue legal action against us. We believe that our practices are lawful and that our co-marketing program allows agents and lenders to comply with their legal obligations. We will continue to engage in discussions with the CFPB and hope to put this matter behind us as soon as possible.”

While Zillow couldn’t comment too much further, it did receive a couple questions on it during the earnings call.

On person asked Philips to elaborate a little bit on if there has been any change in behavior from Zillow’s Premier Agents or mortgage brokers that are using the system because of this controversy?

Philips responded saying that the nature of Zillow’s platform is that advertisers come in and out on a fairly regular basis.

“What I think is probably most instructive for all of you is that we still have robust participation in the co-marketing program and that is a sign that our lender advertisers’ own compliance departments are looking at the program and they believe that it’s compliant and that their broker participation in it complies with the laws that apply to them,” she said. “So we haven’t seen any significant impact as I said, though, that is with the caveat that advertisers do tend to come on and off our platform, just in the ordinary course.”

Spencer Rascoff, Zillow CEO, expanded on this a little later in the call, adding that the percent of agents who have a co-marketing partner hasn’t changed materially in the last year or two.

And, he said that it hasn’t change since they announced they’re in settlement discussions with CFPB.

Tucked in Zillow’s 10-Q filing, the company did add a little more information on the situation, stating,  “Should the CFPB commence an action against us, it 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.”

“As of September 30, 2017, we have recorded an accrual for an immaterial amount in connection with this matter,” the filing stated. “There is a reasonable possibility that a loss in excess of amounts accrued may be incurred; however, the possible loss or range of loss is not estimable. We did not record an accrual related to this matter as of December 31, 2016 because the possible loss or range of loss was not estimable.”

Outside of the looming CFPB news, Zillow recorded a strong quarter. In fact, the company posted its best quarter ever. And, the news was good all over the board for Zillow, as each of its segment’s saw revenue climb in the third quarter.

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