CFPB Takes Aim at Kickbacks

CFPB Takes Aim at Kickbacks to Realtors

The Real Estate Settlement Procedures Act (RESPA) prohibits anyone from giving or accepting “something of value” in exchange for an agreement or understanding that the person will refer real estate settlement services.

CFPB Doubles Down on Marketing Services Agreements (MSAs) and other real and perceived RESPA violations.

“We are deeply concerned about how marketing services agreements are undermining important consumer protections against kickbacks,” said CFPB Director Richard Cordray. “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 Consumer Financial Protection Bureau (CFPB) has taken a very different view from HUD on the permissibility of MSAs and is going after actions that even have a hint of being a kickback in a way that HUD never did. In addition to issuing a warning in July that caused Prospect Mortgage, Wells Fargo and Bank of America to discontinue MSA arrangements, the CFPB has been on the warpath fining lenders, title companies and real estate brokers alike for alleged kickbacks and other RESPA violations related to MSAs and other activities that are common to sales agents’ business models. The CFPB is also partnering with state regulators to go after “inducements” such as such as excessive meal and entertainment expenses given to attorneys, real estate agents and others in an attempt to obtain business.

In South Jersey and the Shore it has become common for title companies to cater open houses and provide agents with customized marketing materials and sometimes handle their “processing”. New Jersey has had a long history of aggressively regulating in favor of consumer protections. These practices might be an unwelcome invitation for the CFPB to come and take a closer look. Why? Because these activities appear to be, unambiguously, “something of value”.

Read on for examples of CFPB enforcement actions involving “something of value”:

Enforcement Action 1

In June, Director Cordray ordered PHH to disgorge $109 million for alleged kickbacks – all the reinsurance premiums it received on or after July 21, 2008. In addition, it prohibits PHH from referring any consumer to a provider of a real estate settlement service if that provider has agreed to purchase any service from, or make any payment to, PHH, and if that purchase or payment is triggered by the referral.

Enforcement Action 2

n January, the CFPB and the Maryland Attorney General took action against Genuine Title and six (6) Chase & Wells Fargo loan officers. The sole owner of the title agency and the loan officers were ordered to pay $662,500 and the loan officers are banned from the mortgage industry for a period of years. The regulators also fined Chase $11.7m and Wells $34m (combined fines & redress to consumers). The fines were based on a finding that the title company offered to provide marketing services for the loan officers that included creating marketing material with their names.

Enforcement Action 3

Last October, the CFPB slapped Lighthouse Title, a Michigan title agency, with a $200K fine and prohibited Lighthouse from entering into new MSAs for allegedly misusing MSAs. It’s relevant to you that Lighthouse had entered into MSAs with various companies, including real estate brokers. The factor which lead to this costly result was that, “[t]he CFPB’s investigation found that the companies on average referred significantly more business to Lighthouse when they had marketing services agreements than when they did not.

Enforcement Action 4

Not waiting for federal regulators to act, this year New York went to war against title insurance companies that pay for items on behalf of closing attorneys and realtors. In early 2015, NY enacted a set of “anti-inducement” laws designed to rein in kickbacks and other inappropriate meal, vacation, gift & entertainment expenses meant to induce referrals by sales agents and closing attorneys.

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CFPB Takes Aim at Kickbacks

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