Last week, the Consumer Financial Protection Bureau issued a compliance bulletin on marketing services agreements. In the bulletin, the CFPB told the mortgage industry that it has “grave concerns” about potential violations of RESPA presented by MSAs.
Following the issuance of that bulletin, the Mortgage Bankers Association is warning its members to take the CFPB’s bulletin very seriously.
In a note sent to its members this week, the MBA said that it views the CFPB’s latest guidance on MSAs to be a “strong warning” that the industry needs to reconsider its usage of MSAs or be subject to the wrath of the CFPB.
“Coming as it does after enforcement and other actions by the CFPB on marketing services agreements, MBA believes that the (CPFB’s) bulletin is short on actual guidance, and can only be interpreted as a series of warnings to lenders against MSAs,” the MBA said in its note.
“The Bulletin is a clearly directed to mortgage lenders and warns of RESPA liability for involvement in MSAs,” the MBA said. “The Bulletin and the press release accompanying it are replete with warnings.”
In the CFPB’s bulletin, and in a companion statement from CFPB Director Richard Cordray, the CFPB said that it sees MSAs as an opportunity to skirt federal laws that prohibit kickbacks and referral fees.
“We are deeply concerned about how marketing services agreements are undermining important consumer protections against kickbacks,” Cordray said last week. “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.”
In its note, the MBA said that the CFPB is issuing a “clear message” that many MSAs violate the RESPA laws.
In the CFPB bulletin, the CFPB states that MSAs are usually presented 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 CFPB said.
According to the MBA, notably absent from the CFPB’s bulletin is any guidance on how to properly construct a MSA. Instead, the CFPB bulletin only cites the potential flaws that exist within the current MSA structure.
The CFPB bulletin describes a number of legal violations the Bureau has encountered in investigations involving kickbacks and referral fees, including 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.
The MBA said the lack of guidance on the future of MSAs, outside of the potential negative issues, is a warning in and of itself.
The CFPB has targeted MSAs several times in the last few months, fining lenders and other organizations for alleged kickbacks and other violations related to MSAs, and have looked with suspicion at the entire business model.
“Under the circumstances, MBA advises lenders to immediately re-evaluate their MSA programs if they wish to avoid supervisory or enforcement scrutiny that considers many of these arrangements to be violations,” the MBA said.
But the MBA isn’t ready to just let the CFPB run roughshod over MSAs without additional guidance.
“However, since the Bureau’s recent guidance on RESPA diverges from previous interpretations, MBA urges that any enforcement involving MSAs should not take place until a sufficient period has elapsed so companies can terminate these arrangements,” the MBA said.
The MBA also said that the CFPB should conduct a formal rulemaking on its RESPA interpretations with a full opportunity for public comment.
“Clear rules of the road are essential to a fair and competitive market to protect consumers,” the MBA said.
(h/t Rob Chrisman)