Nutter Bank Report, October 2015
|Author:||Mr Kenneth Ehrlich and Michael K. Krebs|
|Profession:||Nutter McClennen & Fish LLP|
CFPB Issues RESPA Compliance Guidance on Marketing Services Agreements
The Consumer Financial Protection Bureau ("CFPB") has issued a new compliance bulletin that provides guidance to banks and other mortgage settlement service providers on marketing services agreements ("MSAs") that may violate the prohibitions against kickbacks and unearned fees under the Real Estate Settlement Procedures Act ("RESPA"). CFPB Compliance Bulletin 2015-05, issued on October 8, describes the legal and compliance risks arising from MSAs and provides examples of MSAs that the CFPB believes are designed to illegally evade RESPA's prohibition on the payment and acceptance of kickbacks and referral fees. According to the bulletin, the CFPB believes that MSAs create opportunities for parties to pay or accept illegal kickbacks for referrals of settlement service business. The bulletin also warns that it is inherently difficult for mortgage industry participants to adequately monitor activities under MSAs, in part because such activities may be performed by a wide range of individuals, which creates significant legal and compliance risks for a settlement service provider involved in an MSA arrangement. The bulletin suggests that the CFPB has not seen evidence that the use of MSAs benefits either consumers or the mortgage industry and that the use of MSAs and related arrangements will be subject to heightened scrutiny by the CFPB. The bulletin encourages mortgage industry participants to consider whether the risks and complexity of designing and monitoring MSAs for RESPA compliance outweigh the benefits of entering into such arrangements.
Nutter Notes: Section 8(a) of RESPA prohibits 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 does not prohibit the payment of "a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed" in connection with a mortgage loan. According to the bulletin, MSAs typically provide for payments by a settlement services provider (such as a mortgage lender or broker, real estate agent, or a title company) to another party for advertising or promotional services, but in some cases the payments may be actually disguised compensation for referrals. According to the bulletin, the CFPB has had enforcement experience with settlement service providers entering into MSAs where fees paid under the MSAs were based, in part, on how many referrals a settlement service provider received from the other party to the MSA and the revenue generated by those referrals. Other cases that have led to CFPB enforcement actions have involved settlement service providers keeping payments received from other providers under MSAs without actually performing the contractually-obligated services, according to the bulletin.
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