CFPB’s New Approach to RESPA Enforcement

The Consumer Financial Protection Bureau’s (CFPB) views on marketing services agreements (MSAs) under Section 8 of the Real Estate Settlement Procedures Act (RESPA) appear to ignore past regulatory guidance on such agreements, says a consumer financial services practice group.

The CFPB recently issued a consent order against Lighthouse Title, Inc., a Michigan title insurance agency that had entered into a series of MSAs with various settlement service providers. The CFPB ordered the title insurance agency to pay $200,000 for illegal mortgage kickbacks that violated RESPA.

Although the Consent Order does not describe the nature of the services performed under the agreements, it clarifies the CFPB’s concerns regarding methods used in determining the payments under such agreements. And, it raises “troubling questions” about the CFPB’s interpretation of Section 8, says K&L Gates’ Consumer Financial Services group, a consumer financial services practice, in a recent blog post.

“Many of [the CFPB’s] interpretations seem to be at odds with guidance previously offered by the U.S. Department of Housing and Urban Development [HUD],” K&L Gates says.

The Consent Order offers important lessons for settlement service providers that maintain MSAs because it highlights the importance of determining fair market value for the specific services performed under the agreement and documenting that analysis; suggests that the service provider should be monitored to ensure it is performing the services for which it is being compensated under the MSA; and highlights that the settlement service provider should be able to demonstrate to the CFPB that the service provider actually performed marketing services as identified in the MSA and received a fee that was determined to be fair market value for the actual services performed. 

Marketing services agreements have become a popular choice among settlement service providers over the last few years as a means for downstream settlement service providers to purchase general advertising services directed towards a target consumer population. And while the Consent Order reveals the CFPB’s thinking regarding MSAs, it does not outlaw MSAs.

“With the CFPB’s first pronouncement concerning MSAs, the Consent Order affirms many of the things we already know about structuring MSAs to comply with Section 8 of RESPA,” K&L Gates says. “At the same time, the CFPB appears to ignore the fact that RESPA’s statute permits reasonable payments to a person in a position to refer settlement service business for the performance of actual services.”

Lighthouse Title was found by the CFPB to have violated RESPA by entering into marketing services agreements with various companies such as real estate brokers, with the understanding those companies would refer mortgage closings to Lighthouse.

“The CFPB seems to take the position that the mere entering into a contract with a person in a position to refer settlement service business is a per se violation of Section 8 of RESPA,” K&L Gates says. “We, however, fail to see how such a position is supported by the statute. “

Read the blog post here

Written by Cassandra Dowell

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