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Politics & MoneyMortgage

CFPB doubles down against marketing services agreements

Underscores that MSAs could constitute mortgage kickbacks

The Consumer Financial Protection Bureau issued a bulletin that basically doubles down on a warning they put out in July about marketing services agreements.

The bulletin is a stern warning about the federal prohibition on mortgage kickbacks and referral fees, and describes examples from the bureau’s enforcement experience as well as the risks faced by lenders entering into these agreements.

During the course of supervising mortgage lenders and enforcing federal law, the bureau has found that marketing services agreements carry legal and regulatory risk for lenders. 

“We are deeply concerned about how marketing services agreements are undermining important consumer protections against kickbacks,” said CFPB Director Richard Cordray. “Companies do not seem to be recognizing the extent of the risks posed by implementing and monitoring these agreements within the bounds of the law.”

The CFPB first warned on this in July. Already in the summer two major players in the mortgage space, Prospect Mortgage and Wells Fargo (WFC) announced that they discontinued marketing activities that depend on MSAs because of regulatory uncertainty, recent interpretations of RESPA, and a generally toxic enforcement environment.

At the time, Pete Mills, Senior Vice President for Residential Policy at the Mortgage Bankers Association, said the crackdown was unwarranted. Marketing services agreements have been around for decades, and considered a common practice in the industry. 

“…(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.”

The CFPB has been on the warpath fining lenders for alleged kickbacks and other violations related to MSAs, and have looked with suspicion at the entire business model.

The bulletin argues that while marketing services agreements are usually framed as payments for advertising or promotional services, in some cases the payments are actually disguised compensation for referrals. Any agreement that entails exchanging a thing of value for referrals of settlement service business likely violates federal law, regardless of whether a marketing services agreement is part of the transaction.

The bulletin describes a number of legal violations the Bureau has encountered in investigations involving kickbacks and referral fees.

For example, the CFPB found a title insurance company that entered into marketing services agreements where the fees paid by the company were based in part on the number of referrals it received, as well as the revenue generated by those referrals. In another case, a settlement service provider did not disclose its affiliate relationship with an appraisal management company and did not tell consumers that they had the option of shopping for services before directing them to the affiliate.

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