United States

CFPB sends reminder about RESPA section 8 and marketing services agreements


The Consumer Financial Protection Bureau (Bureau) issued Compliance Bulletin 2015-15 as a reminder to the mortgage industry of the prohibition of kickbacks and referral fees under section 8 of the Real Estate Settlement Procedures Act (RESPA) and to outline the potential risks posed by marketing services agreements (MSAs). The Bureau’s investigation indicates that MSAs are frequently designed to evade the section 8 prohibitions. The bulletin includes an overview of the section 8 prohibitions and legal and compliance risks associated with MSAs, as well as examples of situations from the Bureau’s enforcement experience.

Section 8(a) of RESPA prohibits both the giving and accepting of “any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.”  RESPA defines settlement services to include “any service provided in connection with a real estate settlement.” Of course, there is no prohibition in RESPA for payment for actual work done in connection with a settlement service.

MSAs frequently involve various settlement service providers such as a lender, real estate agent or title company, and may also include third parties that are not settlement service providers. Most often, MSAs are used for payments for advertising or promotional services, but the Bureau has found that the payments may actually be disguised compensation for referrals.

The Bureau describes its analysis of each potential MSA violation to be very sensitive to the specific facts and circumstances involved, and warns that although enforcement actions may provide some guidance, an outcome in one situation does not necessarily ensure the same outcome in a very similar situation. An MSA is not a necessary component of a violation of section 8 because as the Bulletin points out, “any agreement that entails exchanging a thing of value for referrals of settlement service business involving a federally related mortgage loan likely violates RESPA.”

Compliance risks associated with MSAs exist for both the individual involved in the specific conduct and for the entity that employs the individual. The bulletin used descriptions of enforcement actions to provide examples of these risks. The Bureau indicates that the payment of improper kickbacks and referral fees has been the basis of the majority of its public enforcement actions under RESPA and have resulted in monetary penalties to both the companies and the individuals running those companies. In some instances, penalties have included bans from working in the mortgage industry for up to five years.

Finally, the Bureau comments on the many mortgage industry participants who have announced that they believe the risks and complexity of designing MSAs that meet RESPA requirements are too great and far outweigh the benefits derived from MSAs; and encourages others to do the same. The Bureau also encourages entities to report unlawful activities by others in this regard and to self-report about its own conduct in accordance with the Responsible Business Conduct Bulletin.