What was once rumor has now been confirmed: The Consumer Financial Protection Bureau is targeting tech giant Zillow.com for possible violations of the Real Estate Settlement Procedures Act. Expect an epic battle.
In a May 4, 2017, filing with federal regulators, the parent company of Zillow.com, Zillow Group, Inc., divulged that the CFPB is considering taking legal action against the company for its online co-marketing program, which has quickly come to dominate the industry. Under Zillow’s program, lenders pay to appear in internet advertising alongside a real estate agent. RESPA requires that parties to a co-marketed advertisement each pay their fair share of the ad. Some in the industry have alleged that Zillow entices agents to sign up by promising that nearly all of the site’s costs will be borne by co-marketing lenders, giving the agents more or less free advertising.
Zillow’s regulatory filing also reveals that the CFPB’s latest communication consisted of a Notice and Opportunity to Advise (“NORA”) letter. Those missives, which are based on SEC procedures, purportedly allow a company to explain its conduct in the hopes of avoiding further investigation. Attorney Ronald Rubin, who proposed the NORA procedure when he worked at the CFPB, writes, “I wish I could report that a NORA submission ever persuaded the [CFPB] director to decline an enforcement action.”
The CFPB’s interest in Zillow appears to span at least several years. The company also reported that, in 2015, it received and responded to a civil investigative demand (CID) from the CFPB regarding its co-marketing program.
Given the CFPB’s penchant for regulation by enforcement, it is clear that the bureau believes that its most effective course for policing online co-marketing programs is to bring down one of the industry’s largest players. Unfortunately for the CFPB, the results of the 2016 election have put its continued existence in question. So Zillow might win simply by outlasting the bureau.