The CFPB's Respa Consent Orders: Eight Key Takeaways

The Consumer Financial Protection Bureau (CFBP) on January 31, 2017 issued consent orders settling enforcement claims that a major mortgage lender violated the Real Estate Settlement Procedures Act (RESPA) in connection with its marketing, desk rental, lead purchase and other agreements with hundreds of real estate brokers and other settlement service providers (the "Consent Orders"). The CFPB alleged that the agreements were actually mechanisms for the mortgage lender to pay for the referral of business in violation of RESPA Section 8(a). The lender will pay a $3.5 million civil money penalty to settle the action. The CFPB also resolved claims against two of the real estate brokers and a mortgage servicer for allegedly accepting payments under such agreements; those three respondents together will pay $495,000 in consumer redress, disgorgement, and penalties. Moreover, as described in Point 8 below, the recordkeeping and cooperation provisions of the various consent orders suggest that the CFPB has preserved its ability to pursue other real estate brokers (and individual sales agents) who may have been involved in similar conduct.

Significantly, the Consent Orders confirm that there is no general per se RESPA prohibition on agreements among settlement service providers for advertising, marketing, office rentals, leads, and other services or goods. Although some of the conduct alleged in the orders, if true, presents fairly obvious RESPA problems — such as cash payments for referrals — the CFPB also relied on allegations about the terms of the lender's agreements, the manner in which they were carried out, and other surrounding circumstances. Troublingly, in doing so, the CFPB focused on myriad routine practices that are not prohibited under RESPA. Moreover, the CFPB again sidestepped a RESPA statutory exemption that has long been relied upon as expressly permitting payments so long as they are reasonably related to the value of the goods or services provided. Instead, the CFPB's view — as reflected in its PHH case currently pending before the D.C. Circuit Court of Appeals — appears to be that Section 8(c) is a nullity if the fees paid can be viewed as compensation for referrals, even if such fees were commensurate with fair value of services or facilities received. This CFPB stance appears to be unchanged despite an emphatic ruling from a panel of judges for the D.C. Circuit that Section 8(c)(2) of RESPA is an exemption, a ruling that the CFPB is presently challenging.

Real estate settlement service providers are scrambling to make sense of the breadth of practices reviewed and addressed in the Consent Orders and to achieve reasonable certainty in drafting and carrying out RESPA-compliant arrangements for goods and services with one another. With this in mind, we offer eight key takeaways from this CFPB action.

  1. The CFPB continues to try to guide industry on RESPA compliance through settled enforcement cases, rather than by issuing clear guidelines or rules, thereby promoting uncertainty and causing confusion for settlement service providers.

    CFPB Director Richard Cordray announced the Consent Orders by saying that they send a "clear message" about the illegality of referral fees and that the CFPB will go after "both sides" of such allegedly improper arrangements. The director has previously urged participants in the marketplace to use the CFPB's consent orders to guide their conduct, going so far as to insist that it would be "compliance malpractice" for executives not to carefully review the contents of these settlements.

    But the Consent Orders, like other negotiated CFPB settlements, present some significant compliance challenges, particularly given that the CFPB included allegations that are overly broad and inconsistent with settled law. As noted, if the allegations are taken as true, some straightforward RESPA violations occurred in connection with the agreements at issue. For example, it is not shocking that the CFPB took action against conduct such as real estate brokers allegedly providing incentives for their sales agents to refer consumers to lender's loan officers, including paying some sales agents for each referral made.

    But the CFPB appears to have taken the opportunity to also challenge other practices that are either defensible under RESPA or that the respondents had no ability or motivation to fight. For example, the CFPB took issue with lender's internal tracking of the amount of mortgage business that it earned from a given real estate broker per month compared to its total number home buyers, a common practice in the industry referred to as a "capture rate." But this, in itself, does not violate RESPA. Quite the opposite tracking the number of...

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