Compliance experts on navigating RESPA in a digital world

Compliance experts discuss new CFPB guidance at the National Settlement Services Summit in St. Louis

The title industry is well acquainted with the gray areas surrounding the 1974 Real Estate Settlement Procedures Act (RESPA), which governs how real estate agents, mortgage lenders and title providers interact and bans things like kickbacks.

“Regulators would like to think that their rules are very black and white, the problem is that black and white creates grey space,” Jerra Ryan, the vice president of Firstline Compliance, LLC, told National Settlement Services Summit (NS3) attendees gathered in St. Louis on Tuesday afternoon. “The only way you can navigate that grey space is to define what you black is in that space.”

The proliferation of digital marketing has introduced new challenges. In order to provide guidance on the application of RESPA rules to digital marketing, the Consumer Finance Protection Bureau (CFPB) recently released an Advisory Opinion and Interpretive rules. While these communications fall short of being laws or even regulations, the compliance experts at NS3 recommended that real estate professionals still treat them with respect and view them as an extension of RESPA.

When it comes to digital marketing, panelists at NS3 said real estate companies need to be aware of how their information is being displayed on digital marketing sites.

“An online digital marketing company that either manipulates the display or presentation of lenders or who use information in a non-usual way to affirm or influence the consumer’s selection of a provider are violating RESPA,” Loretta Salzano, an attorney and the president of Franzén & Salzano, told attendees.

According to Salzano, over the past several years, the CFPB’s definition of a referral has expanded.

“Anything seeking to influence anyone, is really reaching. Based on the language of the law, anything directed to the consumer, but even something that acts like an online billboard, needs to be evaluated to see if it fits in the scope of accepted referral,” Salzano said.

In addition to advertising on websites or co-marketing with other real estate service providers, compliance experts also noted that industry professionals should also be aware of their social media behavior.

“Social media is also advertising and marketing, it is just a different platform, but it falls into the digital realm,” Ryan said.

When it comes to liking or sharing content of other industry players, Ryan said that context matters, as a like or a share is a thing of value. If you are only like or sharing the content of one real estate agent or mortgage lender that you are hoping to get business from, that could be viewed as a violation of RESPA. To avoid this, Ryan and Salzano suggested interacting with a wide variety of industry professionals on social media and that if you share content, such as a listing, use it to market your services or products.

The same is true of the sites a service provider advertises on. According to Ryan and Salzano, even if a service provider does not have an exclusive advertising agreement with another firm, if it is the only service provider advertised on the site, it could attract unwanted attention from the CFPB.

“Even if you have a marketing services agreement with someone and it doesn’t state that you have a right to exclusive ads on that party’s website or the exclusive right to display your marketing collateral in their office or elsewhere, that is just leading to the same theme that we are hearing from the CFPB that any exclusive marketing is problematic,” Salzano said.

In addition to RESPA and other guidance provided by the CFPB, Ryan and Salzano said settlement services providers also need to be cognizant of the Unfair, Deceptive or Abusive Acts or Practices (UDAAP) statute, which protects consumers against misleading information. Under this statute, the compliance experts said real estate industry players need to keep in mind how they are marketing themselves and that they should be able to quantify or prove all of the claims they make.

“If you claim that someone is the best, it might be true, but you have to be able to substantiate that, so that could be a violation,” Ryan said.

The troublesome part of UDAAP violations, according to the panelists, is that there is no clear definition of what is a violation and what isn’t. Instead, regulators have taken a “we’ll know it when we see it” approach, making the category a catchall for all non-clear cut violations.

While an industry service provider may feel that it is hard to do any advertising without accidentally crossing the line, Ryan and Salzano said that a good rule of thumb is that you can pay for goods and services, but not referrals, and to vet those who you do business with.

“If you are doing co-marketing, know who you are getting in bed with,” Salzano said. “If you are going to be co-working with people who are bad actors or they are sloppy and you are relying on them to do the right thing, you might go down with the ship.”

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