The Consumer Financial Protection Bureau, which has sharpened its enforcement of marketing services agreements this year, may be expanding its definition of a kickback to include any type of referral, according to a report from Barclays.
"The CFPB seems to be taking the stance that referrals of any type are not a 'bona fide service' and that the exchange of anything of value tied to referred business could be considered a kickback," Barclays states in its U.S. Building Products & Homebuilding report.
"This more aggressive interpretation of RESPA is being challenged in the courts, but in the meantime has made it more difficult to be confident that referral activity will be deemed compliant by the CFPB," the report said.
Barclay's report comes amid a flurry of CFPB action concerning MSAs in the last several months. The bureau released compliance bulletins in July and October that warned lenders about the legal and regulatory risk they face with these agreements.
“We are deeply concerned about how marketing services agreements are undermining important consumer protections against kickbacks,” Cordray said in October. “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 Mortgage Bankers Association responded with its own warning to lenders, stressing that the CFPB's letter should be taken seriously.
“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 CFPB's enforcement actions, which have included fines for Wells Fargo, JPMorgan Chase and PHH Mortgage, prompted Wells Fargo and Prospect Mortgage to discontinue MSAs this year.
Now, any referral services seem to be under the microscope. From the Barclays report:
How far could this ultimately go? Most likely, the CFPB’s recent pronouncements simply amount to ‘saber-rattling’ in order to discourage the industry’s more egregious violations.
However, the situation bears monitoring, for three reasons: First, referrals are widespread among builders, brokers, and the entire mortgage complex; second, RESPA’s prohibitions are not intuitive, which increases the odds of minor infractions taking place; and third, the CFPB seems willing to go against long-established precedents in its policing of the industry.
The Barclays report also notes that the CFPB is trying to extend the statute of limitations on RESPA, "which substantially increases the potential fines that the CFPB can levy."
Read the full Barclays report here.
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