CFPB Advises Manipulating Search Results on Comparison-Shopping Platforms May Violate RESPA

Regulatory Developments

CFPB Advises Manipulating Search Results on Comparison-Shopping Platforms May Violate RESPA

On February 7, the CFPB issued an advisory opinion, accompanied by a statement from CFPB Director Rohit Chopra, clarifying that operators of digital mortgage comparison-shopping platforms and mobile apps (operators) violate Section 8 of RESPA when they non-neutrally use or present information about one or more settlement service providers participating on the platform, the non-neutral use or presentation of information steers or affirmatively influences a consumer to use those settlement service providers (i.e., referral activity), and the operator receives a payment or thing of value that is, at least in part, for that referral activity. The advisory opinion also clarifies that if an operator receives a higher fee from one settlement service provider than another on the same platform, without facts to show that the payment is not for enhanced placement or another form of steering, the higher fee can be evidence of an illegal referral fee arrangement.

“The CFPB’s action to rein in the manipulation of digital mortgage comparison-shopping platforms is part of a broader all-of-government effort to end the illegal biasing of ostensibly neutral platforms.”
– CFPB Director Rohit Chopra

FDIC and OCC Announce HMDA Reporting Threshold Changes

On February 1 and 3, the FDIC and the OCC announced that the threshold for reporting data on closed-end mortgage loans is now 25 loans in each of the two preceding calendar years. This threshold mirrors the threshold established by the CFPB’s 2015 HDMA Final Rule, and represents a decrease from the 100-loan threshold set by the 2020 Final Rule. The FDIC and CFPB have also confirmed that, in respect of closed-end mortgage data collected in years 2020, 2021 and 2022, neither the FDIC nor the CFPB plan on initiating enforcement actions or cite HMDA violations for certain failures to report such data, so long as the subject institution (1) meets Regulation C’s other coverage requirements and (2) originated at least 25 closed-end mortgage loans in each of the two preceding calendar years but fewer than 100 closed-end mortgage loans in either or both of the two preceding calendar years. Institutions that meet the reporting threshold of 25 closed-end mortgage loans in each of the two preceding calendar years as of 2023 should start collecting data in 2023 and reporting such data in 2024. The CFPB also provided resource materials, including a reference chart to assist filers.

SEC Staff Issues Bulletin Calling for Review of Differential Advisory Fee Waivers for Multi-Class Funds

The SEC’s Division of Investment Management issued a bulletin reminding funds, boards and counsel of the need to avoid cross-subsidization among share classes due to advisory fee waivers that vary by class for multi-class mutual funds. Although permissible generally, the staff noted that differential advisory fee waivers that are long-term or permanent, or effectively long-term or permanent, and are not substantiated with a clearly defined temporal purpose, could present a means for improper cross-subsidization. In the staff’s view, whether a differential advisory fee waiver presents a means of cross-subsidization between classes prohibited by Rule 18f-3 is a facts-and-circumstances determination for a board in consultation with the adviser and counsel.

While the bulletin is a general call to review differential advisory fee waivers, the focus is on fund-of-funds arrangements. The staff notes that a 2016 no-action letter addressed only shareholder approval requirements for a revision to fee structures for a fund-of-funds, and should not be relied upon to justify any differential advisory fee waivers under Section 18 and Rule 18f-3. Instead, the staff stated that a class-specific waiver at the underlying fund level may be appropriate if the combined fees paid at both levels is at least equal to the amount of advisory fees paid by the other classes, such that the waiver for the waived class is demonstrably not being subsidized by other classes.

SEC Examinations Division Publishes 2023 Priorities Letter

The SEC Division of Examinations recently published its list of priorities for 2023. The annual priorities letter is designed to promote compliance and protect investors, but also provides a roadmap for firms to better understand where the Division will take its examination efforts over the coming months.

Read more about these examination priorities in a recent client alert.

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