On February 29, the CFPB issued a circular warning digital comparison-shopping websites and lead generators that practices that steer customers to certain financial products or services based on compensation received from companies that sell such financial products or services can be an abusive act or practice in violation of the Consumer Financial Protection Act. The Bureau’s guidance will have a major impact on comparison-shopping websites for mortgage, credit cards, and short-term installment lending, among others.

Highlights from the Circular

• Operators of digital comparison-shopping websites can violate the CFPA’s prohibition on abusive acts or practices if they distort the shopping experience by steering consumers to certain financial products or services based on remuneration to the website operator. Similarly, lead generators can violate the prohibition on abusive practices if they steer consumers to one participating financial services provider instead of another based on compensation received. According to the Bureau, operators of comparison-shopping tools may deceive consumers with user interfaces that lead people to believe they are the beneficiaries of competition, when in fact consumers are tricked into paying higher prices or selecting inferior products. 
• The Bureau reasoned that consumers reasonably rely on digital comparison-shopping tool operators or lead generators to act in their interests. Consumers use these sites to navigate a complex financial market to obtain products that are best for them. Instead, these websites steer them toward more expensive or less favorable products because those products generate more revenue for the website operator.

What’s Targeted

• The Bureau lists several examples of arrangements they now consider abusive. Some of these include:
  • A comparison-shopping site presents a product that is preferred because of financial considerations in a way that is more likely to be seen, reflects a preferential ordering, has more dynamic design features, requires fewer clicks to access the product information, or otherwise increase the likelihood the consumer will select the product.
  • A website directs consumers to the products that pay higher fees within a product category—for example, routinely matching consumers with a loan provider because it pays the highest fee per application.
  • A website presents certain options as “featured” because they are provided by the operator or a third-party provider that paid for enhanced placement.
  • A website operator receives different payment based on whether the digital comparison-shopping tool meets a certain threshold volume allocation of leads generated within a set period of time, and uses steering practices to increase the likelihood the operator will satisfy volume allocation requirements. For example, in a 14-day period, a provider pays fees only if at least 1,000 applications are generated, and, on day 13, the operator is more likely to steer consumers to that provider’s products until the allocation is met.
  • A comparison-shopping website or lead generator uses dynamic bidding or a bounty system to determine which offers are presented to consumers with certain demographic or other characteristics.
  • A comparison-shopping website presents a preferred product as a “match” that is not the participating product that is most consistent with the expressed interests of a consumer.
• The Bureau identified certain practices that are less likely to be considered UDAAPs:
  • According to the circular, comparison-shopping websites or lead generators that receive compensation from providers, but do not consider such compensation in their decisions regarding placement or, similarly, regarding which providers receive a lead, would not be considered abusive.
  • The Bureau indicated that all things being equal, the greater the number of comparison options a customer is shown, the less likely the product or service would be considered an abusive act or practice.

Note that CFPB circulars are statements of policy under the Administrative Procedures Act. While they do not impose any legal requirements on external parties, they advise market participants how they see applicable law on a particular topic and how they would enforce it. The Bureau has made it clear that website providers and lead generators that operate in this fashion will be the target of future enforcement actions.

Additional Considerations for Mortgage-Comparison Sites

Specifically for mortgage-comparison sites, this circular effectively adds a second layer of compliance review. The Bureau advisory opinion from February 2023 raised concerns about biased recommendations on mortgage-comparison websites and how preferential steering arrangements can put operators of these sites at risk for violating RESPA’s anti-kickback provisions. This circular reinforces the notion from the earlier advisory opinion that UDAAP violations often co-exist alongside alleged RESPA violations. Also note that the specific UDAAP examples used in the circular make it somewhat challenging to rely simply on clear and prominent disclosures, which is typically how many UDAAP challenges are addressed. Therefore, this circular puts mortgage comparison sites on clear notice that UDAAP is a separate violation.

Putting it into Practice: This circular highlights the Bureau’s continued push back against what they see as “dark pattern practices” or practices designed to trick or manipulate consumers into making choices they would not otherwise have made and that may cause harm. We would not be surprised to see the FTC adopt this position under their UDAP powers and go after non-financial products and services. In the past, the FTC has fined companies that presented information about competing products in a manner that misled customers about the objectivity of the information provided, so leveraging the CFPB’s analysis in the latest circular would be a natural extension of the FTC precedent.