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FTC accuses Louisiana Real Estate Appraisal Board of violating federal law with fee rules

Alleges that rules on “customary and reasonable” appraisal fees stifle competition

The rules established by the Louisiana Real Estate Appraisal Board, the regulatory body that oversees property appraisals in the state, violate federal antitrust laws and stifle competition for appraisal services due to strict requirements to adhere to a “customary and reasonable” appraisal fee schedule, according to the Federal Trade Commission.

On Wednesday, the FTC filed a complaint against the Louisiana Real Estate Appraisal Board, accusing the group of “unreasonably restraining price competition for appraisal services in Louisiana” by stipulating that appraisal management companies must follow the state’s established polices for the fees that AMCs pay to appraisers.

According to the FTC, Louisiana’s rules go well beyond the rules established in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which require appraisal management companies to pay “a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.”

The FTC alleges that the Louisiana Real Estate Appraisal Board required appraisal fees to be equal to or greater than the median fees identified in survey reports commissioned and published by the board.

According to the FTC, the Louisiana board exceeded its authority by investigating and sanctioning companies that paid fees below those specified levels.

The FTC’s complaint alleges that Dodd-Frank “neither requires nor authorizes the restrictions that the board placed on appraisal fees.”

And according to the FTC, the state’s rules and the board’s insistence on enforcing them thereby limits the freedom of appraisers and their customers to engage in “bona fide negotiations” to set appraisal fees for real estate appraisals in the state.

“The Board adopted a regulation, effective as of Nov. 20, 2013, purportedly implementing a requirement under federal and Louisiana law that AMCs pay appraisers a ‘customary and reasonable’ fee for real estate appraisal services,” the FTC said in its complaint. “In both promulgating and subsequently enforcing that regulation, the Board has unlawfully restrained price competition.”

In a statement, the Louisiana Real Estate Appraisers Board denies the FTC claims, adding that it is operating well within its rights and any accusations beyond that are “ludicrous” and without merit.

“Respectfully, the FTC is just plain wrong. By issuing this legally faulty and factually incorrect complaint, the FTC is seeking to punish a Louisiana state agency for following federal regulatory mandates,” Bruce Unangst, executive director of the Louisiana Real Estate Appraisers Board, said in a statement.

“It is the federal government that put these requirements on state appraisal agencies, and our Board followed these federal regulations after an open, public and transparent rulemaking process,’ Unangst continued.

“To now suggest that LREAB’s good faith efforts to comply with federal law is some sort of shadowy price-fixing conspiracy is ludicrous. Congress and six financial regulatory agencies in Washington have directed Louisiana to do exactly what the FTC is now alleging is an antitrust violation,” Unangst added.

“These claims distort the reality of the Board’s conduct in an attempt to stitch together a conspiracy where none exists.,” Unangst concluded. “We plan to vigorously contest these charges and defend the interests of Louisiana consumers while ensuring our state complies with federal appraisal independence regulations.”

In its complaint, the FTC lays out exactly how Louisiana’s rules negatively affect price competition in the state.

According to the FTC, Louisiana’s appraisal laws stipulate that AMCs must compensate appraisers at a rate determined by one of three methods:

  • An AMC may use a survey of fees recently paid by lenders in the relevant geographic area
  • An AMC may use a fee schedule established by the Board
  • An AMC may identify recently paid fees and adjust this base rate using six specified factors: the type of property; the scope of work; the time in which the appraisal must be performed; the appraiser’s qualifications; the appraiser’s experience and professional record; and the appraiser’s work quality

Those rules were codified into Louisiana state law in 2013, when the board, “driven by its apparent dissatisfaction with the free market,” established the state’s rules for paying appraisers.

“The regulation, which specifies how AMCs must comply with the customary and reasonable fee requirement, unlawfully restrains competition on its face by prohibiting AMCs from arriving at an appraisal fee through the operation of the free market,” the FTC said in its complaint.

According t the FTC, neither Dodd-Frank nor the state legislature required the board to set customary and reasonable fees at a particular level. “Rather, the board, acting in its discretion, has effectively required AMCs to pay appraisal fees that equal or exceed the median fees identified in survey reports (sanctioned by the board),” the FTC said.

The FTC notes that several AMCs were the subject of board investigations and enforcement actions, and subsequently “explicitly agreed” with the board to use the state’s established survey reports to set appraisal fees.

Other AMCs then decided to use state’s reports to set fees after learning of the board’s enforcement campaign, in an effort to avoid board scrutiny and sanctions, the FTC said.

The FTC also notes the makeup of the board, which could be in violation of a recent Supreme Court decision.

“The Bureau is committed to the judicious exercise of its enforcement discretion as mapped out by the Supreme Court in the North Carolina State Board of Dental Examiners case,” the FTC’s acting director of the bureau of competition, Tad Lipsky, said.

In the North Carolina State Board of Dental Examiners case, the Supreme Court ruled in 2015 that a state “may not give private market participants unsupervised authority to suppress competition even if they act through a formally designated ‘state agency.’”

That decision stemmed from the North Carolina dental board, the state’s regulatory body that was made up primarily of dentists “drawn from the very occupation they regulate.” The board barred non-dentists from offering competing teeth whitening services to consumers, which led to a fight that moved all the way up the Supreme Court.

“The Court’s decision makes clear that state agencies constituted in this manner are subject to the federal antitrust laws unless the state actively supervises their decisions,” the FTC said at the time.

And according to the FTC, the Louisiana Real Estate Appraiser Board is made up almost entirely of appraisers and operates without appropriate supervision from the state’s government.

According to the FTC, the Louisiana board is made of eight licensed appraisers and two representatives of the lending industry. One of the eight appraiser members must also be engaged in the business of appraisal management.

Specifically, the FTC notes that a “controlling number” of the board’s members are “active market participants,” and that the board is not supervised by the state, a condition that allowed the violations to continue.

“The great preponderance of state board activity across the country occurs without significant antitrust concern, and the Commission will respect the authority of such boards when they operate within the defined scope of antitrust law,” Lipsky said.

“Today’s action – the first such Commission complaint against a state board since the Supreme Court decision in North Carolina Dental – shows that the Commission remains vigilant and will exercise its prescribed authority when economically sound and otherwise consistent with the public interest,” Lipsky added. “Nearly everyone that purchases or refinances a home in the state of Louisiana pays appraisal fees, these consumers deserve to benefit from a free market where those fees are set by competition.”

According to the FTC, it files a complaint when it has “reason to believe” that Federal Trade Commission Act has been or is being violated, and the FTC says that’s exactly what’s happening in Louisiana.

An administrative trial in the case is scheduled to begin on Jan. 30, 2018.

[Update: This article is updated with a statement from the Louisiana Real Estate Appraisers Board.]

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