Zillow Group’s legal team is meeting with federal regulators over the next few weeks, seeking a settlement in the wake of a two-year investigation into the Seattle real estate media company’s co-marketing program.
The Consumer Financial Protection Bureau (CFPB) has been looking into a Zillow offering that allows mortgage brokers to pay for a share of real estate agents’ advertising costs in exchange for placement in an agent’s ad on Zillow.com and Trulia.com.
Real estate professionals can pay a monthly subscription fee for Premier Agent, which surfaces advertisements next to home listings on the site. If a lender pays for co-marketing, her name will appear below an agent’s.
That caught the feds’ attention because of a law called the Real Estate Settlement Procedures Act (RESPA) which forbids lenders from giving agents kickbacks in exchange for business referrals.
Under RESPA, lenders can pay to co-advertise with a real estate agent but the dollars they pay must be proportionate to the amount of advertising space the lender gets. If, for example, a lender covered $10 of an agent’s $100 advertisement, the lender’s information could take up no more than one tenth of the ad. It’s illegal for a lender to pay for business referrals outright but they can share advertisements with agents.
CFPB is also investigating whether Zillow is in violation of the Consumer Financial Protection Act which prohibits deceptive business practices.
Zillow says it has been trying to work with CFPB since the start of the investigation to ensure the co-marketing program is compliant with RESPA and get clarity on vague aspects of the law.
“They have failed to give us concrete feedback, and we’re aware of no evidence of consumer harm or any actual consumer complaints,” a Zillow spokesperson told GeekWire. “We think this is a clear overreach, and one of many examples of the CFPB legislating by fiat.”
On the company’s second-quarter earnings call last week, Zillow CFO Kathleen Phillips said she expects to settle the matter with regulators swiftly.
“We anticipate that to be a pretty fast process,” she said. “If we are not able to reach a settlement, if this turns into a regular litigation matter in federal court with discovery, procedural motions and the like [that] can take quite a bit of time. But the CFPB settlement portion we don’t anticipate that to be very long or drawn out.”
If Zillow isn’t able to reach a settlement with regulators, CFPB “may seek restitution, disgorgement, civil monetary penalties, injunctive relief or other corrective action,” according to Zillow’s SEC documents. “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.”
In January, CFPB reached a multimillion-dollar settlement with Prospect Mortgage over alleged violations of RESPA, according to a report from the Miami Herald. CFPB levied fines over payments made by loan officers to cover real estate agents’ advertising costs to an unnamed site “widely understood to be Zillow,” The Herald reports.
“Our co-marketing product is a way for agents and lenders to share advertising space on our site and is legal,” a Zillow spokesperson said. “We continue to engage in settlement negotiations with the CFPB in good faith, but we strongly disagree with their allegations that our co-marketing product violates applicable law.”