Internet giant Zillow.com revealed in an earnings call last week that the company has yet to resolve its on-going dispute with the Consumer Financial Protection Bureau about its co-marketing program. The slow pace of negotiations suggests that Zillow believes the CFPB lacks the means to credibly threaten the company.
The spat with the CFPB dates back several years, when the bureau served a civil investigative demand on Zillow. At issue in the demand was whether Zillow was violating the Real Estate Settlement Procedures Act (RESPA) through its co-marketing program, in which a lender pays to appear in advertisements alongside a real estate agent. The CFPB alleges that that process amounts to a prohibited referral arrangement under RESPA.
In prepared remarks for the company’s most recent earnings call, Kathleen Philips, Zillow’s chief financial officer, said that the two sides “have not yet come to a mutually agreeable settlement.” When later responding to specific questions, both Philips and Spencer Rascoff, Zillow’s CEO, asserted that participation in its co-marketing program has not changes materially since the CFPB began its investigation. Indeed, this past quarter was Zillow’s most profitable ever.
Zillow realizes it has a golden opportunity to get regulatory blessing for its business model. The CFPB is wounded: It faces claims that it is unconstitutionally structured; it is opposed by a hostile congress and president; and it is lead by a director who has less than a year left in his term. Both the CFPB and Zillow know that any enforcement action against the company would stretch beyond that time, into a term with a new and likely more business-friendly director. The CFPB has always been keen to score what appear to be public-relations wins, even if those matters do little to change the regulatory environment. So the CFPB is probably trying to secure meager concessions from Zillow, which would allow the bureau to save face, declare victory, and go home. Given that bargaining position, Zillow has much to gain from the situation and little to lose.