The Consumer Financial Protection Bureau wants mortgage lenders to stop using marketing services agreements, and it’s using the stick rather than the rules process to do so.
Two major players in the mortgage space announced this morning that they are discontinuing marketing activities that depend on MSAs because of regulatory uncertainty, recent interpretations of RESPA, and a generally toxic enforcement environment, and that appears to be exactly what the CFPB wants.
“Wells Fargo’s decision to exit all marketing services agreements is an important step for the mortgage industry towards ensuring compliance with the RESPA statute and freeing up more choices for consumers,” Samuel Gilford, spokesman for the CFPB, told HousingWire after the initial story broke.
Marketing services agreements have been around for decades, and considered a common practice in the industry, according to Pete Mills, Senior Vice President for Residential Policy at the Mortgage Bankers Association.
“…(T)his has not been hidden in the dark. There’s a section of RESPA [Section 8(c)(2)] that talks about payment of bona fide compensation for goods and services actually provided being exempt from RESPA referral fee prohibitions, and a whole body of industry practice backed up by regulatory counsel opinion on MSAs,” Mills told HousingWire. “The (CFPB) has taken a very different view from HUD of the permissibility of these arrangements. This is not a case of something that’s been unenforced for decades. Everyone knows about these. HUD for years did RESPA enforcement.
“But now that view has changed under the auspices of the bureau via the enforcement action against Lighthouse and the PHH matter,” Mills said.
In June, the CFPB charged that PHH Corp., a mortgage lender, illegally referred consumers to mortgage insurers in exchange for kickbacks, requiring the company to pay $109 million to the bureau.
In another case cited by industry proponents as egregious, the CFPB fined Lighthouse Title, a Michigan-based title insurance agency, for alleged misuse of marketing services agreements.
In both cases, industry proponents say, the CPFB was too heavy-handed regarding a perfectly legal practice.
“If the bureau is taking a different position on this part of RESPA, let’s do this via a rule making process that allows comment and applies prospectively, as opposed to making new rules through enforcement orders,” Mills said.
The CFPB sees MSAs as tools that can be easily abused, and issued a stern warning about their use to other companies in the field.
“We are concerned that such agreements can carry significant legal risk for companies and undermine transparency for consumers,” Gilford said. “Companies should take note of today's action and consider carefully whether their own business practices comply with the consumer protections provided under the law, which bars kickbacks for customer referrals.”
But that kind of warning isn’t regulation.
“If the bureau wants these to end, they should put out of rule that says this is how RESPA works now,” Mills said.