[UPDATE 1: Statement from Borders & Borders added]
The Consumer Financial Protection Bureau flexed its enforcement authority, filing a lawsuit against Kentucky law firm Borders & Borders, alleging the firm and its principals illegally paid kickbacks for real estate settlement referrals.
Borders & Borders pushed back against the allegations, saying "we would not and did not violate RESPA."
The bureau accuses the Louisville-based law firm and its principals of violating the Real Estate Settlement Procedures Act (RESPA).
The CFPB filed suit in a Kentucky federal court, alleging Borders formed a network of affiliated companies, allowing the various entities to pay kickbacks amongst each other for referrals on mortgage settlement services.
The bureau says Borders & Borders specifically formed nine joint ventures, linking them up with real estate and mortgage broker companies.
The joint-ownership structure reportedly allowed the law firm to “disguise illegal kickbacks as legitimate profit sharing,” the enforcement agency claimed.
As for how it worked, the CFPB says affiliated companies or brokers with pre-existing arrangements would often refer a homebuyer to Borders & Borders for closing and other settlement services. In turn, the law firm arranged for the title insurance to be handled by a corresponding firm in the joint venture, the CFPB said.
At the end of the line, profits were split between the Borders principals and the referring mortgage broker, the agency alleges.
But principals at the firm publicly disagreed with the CFPB's findings.
"This case concerns a number of title agencies that were affiliated with our firm several years ago," Borders & Borders said in a statement. The firm calls the title agencies 'affiliated business arrangements,' and says they are "expressly allowed by RESPA."
"There were disclosures to every consumer, as required by the statute, and in every instance in which title insurance was issued through the agencies, the consumer approved," the law firm said. "We note that the CFPB does not allege that there was any consumer harm, or that any consumer paid a penny more for title insurance issued through the agencies in question. Instead, the CFPB is trying to enforce its own version of rules that are not only not in the statute but which have been declared unconstitutional by a United States District Court. We are very disappointed by the CFPB’s conduct, and we will certainly defend the case vigorously."
The Department of Housing and Urban Development kicked off the initial investigation, prompting Borders to shut down its joint ventures. The case was then moved to the CFPB in July 2011 when the bureau obtained RESPA enforcement authority.
Borders & Borders is not the only business in the financial services space to land in the CFPB’s sights.
The enforcement agency filed suit in federal court against mortgage firm Castle & Cook Mortgage over claims of loan steering earlier this year. At the time, the bureau asked the court to end the company’s loan officer compensation practices.
The bureau also sued Morgan Drexen and an affililated bankruptcy attorney for allegedly charging upfront fees for debt-relief services. That particular investigation resulted in a countersuit against the bureau.