The CFPB recently issued Consumer Financial Protection Circular 2024-01 which addresses “preferencing and steering practices” and the resulting UDAAP risks that can be found within certain comparison-shopping tools and lead generation practices.
Digital Comparison-Shopping Tools
The Circular applies to shopping tools that give information on the costs, features and other terms of a product or service and compares those characteristics across multiple providers. Those who operate digital comparison-shopping tools often have arrangements with the providers that participate. Sometimes, compensation is based on “preferential treatment” or on a “fee-per-action basis”, meaning that an operator’s compensation is based on how many times a provider’s information is clicked on or their application volume. Operators may even allow providers to bid against each other for the most favorable treatment or placement.
Lead Generation
Lead generators often collect data directly from consumers, so that information can then be sold to, for example, a lender. These lead generators determine which lender gets the data and sometimes use algorithms to make automated decisions using many variables, similar to the way digital comparison-shopping tools work. Lead generators can be paid by participating lenders in much the same way as digital comparison-shopping tool operators, including on a “fee-per-action” basis, through bidding, etc.
The CFPB’s focus, however, are the UDAAP risks involved in these arrangements and the fact that lead generators and comparison-shopping tool operators are, in fact, subject to UDAAP prohibitions. The CFPB believes that consumers should be able to rely on comparison-shopping tool operators and lead generators to act in their best interests. The Circular goes on to give examples of when these types of steering arrangements take unreasonable advantage of consumers’ reliance on them, leading to abusive practices. If your institution participates in these comparison-shopping platforms or works with lead generators, it’s a good idea to understand exactly how they work and evaluate the possible risks. Keep in mind too that, just over a year ago, the CFPB also put out an Advisory Opinion on RESPA concerns related to mortgage comparison-shopping platforms.
Published
2024/03/08
