Affiliated Business Disclosures

Another area of review by the CFPB is disclosures between entities that are conducting business together pursuant to agreements. Such disclosures are called the Affiliated Business Arrangement Disclosures and provide a statutory safe harbor to companies to avoid Section 8 violations, if properly made.  An AfBA disclosure must include the following:

A statement of the existence of the affiliated business relationship.

An explanation of the nature of the relationship among the parties, including an explanation of the referring party’s ownership and financial interests in the referred affiliated business entity.

An estimate of the charge or range of charges generally imposed by the referred affiliated business entity.

A statement that the consumer is not required to use the referred affiliated business entity and may elect to use any entity providing the requisite settlement services of his or her choice.

An acknowledgement line where the consumer must sign and date the disclosure as evidence of his or her receipt.

RESPA specialIn May 2014, the CFPB filed a consent order with RealtySouth, the largest real estate firm in Alabama. The CFPB found that RealtySouth providedinadequate disclosures that could leave consumers unaware of their rights to choose service providers during the home buying process.

 The penalties imposed on RealtySouth were as follows:

$500,000 civil penalty

Must ensure its disclosures comply with RESPA

Ensure that its employee training materials emphasize its agents cannot require the use of affiliates.

Recommendation of Risk Management Program

With the increase on enforcement by the CFPB and the increased scrutiny on social media, financial institutions need to consider the implementation of a risk management program to identify, monitor and control risks related to RESPA Section 8, the social media guidelines and the use of social media sites.  The size of this risk management program should correlate with the amount of involvement and investment in social media by the company or individual. The guidance states that the program should be developed in collaboration with specialists in compliance, legal, technology, information security, human resources and marketing. It also stated components of a risk management program to include the following:

A governance structure with clear roles in which the board of directors or senior management directs how using social media contributes to goals of the company.

Policies and procedures regarding use and monitoring of social media and compliance with all applicable consumer protection laws and regulations.

A risk management process for selecting and managing third-party relationships in connection with social media.

An employee training program which incorporates policies and procedures for official use of social media.

An oversight process for monitoring information posted to social media sites administered by the institution or a contracted third party.

Audit and compliance functions to ensure ongoing compliance with the institution’s social media policies and procedures.

Parameters for providing appropriate reporting to financial institutions’ board of directors or senior management of the effectiveness of the social media program and if the stated objectives are being achieved.

When HUD passed on supervisory powers to the CFPB, there were modifications to RESPA, specifically including guidance regarding social media. However, the biggest change that arose was in the field of enforcement.

The CFPB has sent a message to the mortgage industry through the use of hungry investigators. It is also following the trend of bringing down the hammer on those companies in the industry that fail at full compliance with RESPA, resulting in unsavory business practices — contrary to the primary goal of Section 8, which is and will continue to be aimed at the protection of the consumer.