On May 28, the CFPB ordered the largest real estate company in Alabama to pay a $500,000 civil penalty to settle claims that the company provided inadequate disclosures of its relationship with an affiliated title insurance company. The CFPB alleged that the realty company failed to comply with the disclosure-related provisions of RESPA in connection with affiliated business arrangements (AfBAs). Under RESPA, AfBAs do not violate the prohibition on the exchange of referral fees if, among other things, the party referring a consumer to its affiliate gives the consumer a disclosure clearly stating that the consumer may shop for other, lower-cost providers and that the consumer is not required to use the affiliate.
The CFPB alleged that, over a 14-month period in 2011 and 2012, the realty company provided consumers a document explicitly directing that title and closing services would be performed by the affiliate. Then, in 2012, the realty company changed its document to allow the consumer to choose the affiliate or another provider. During all of these periods, the realty company also provided an AfBA disclosure, but the CFPB alleged that the disclosure did not comply with RESPA’s Regulation X because it was not in the format required by Appendix D to Regulation X.
The CFPB charged that the realty company’s AfBA disclosure deviated from the format set forth in Regulation X and thus did not comply with RESPA. For instance, the CFPB claimed that the AfBA disclosure did not use capital letters or otherwise highlight the fact that consumers could obtain services from other providers and that the disclosure language was “hidden” among other statements. Further, the CFPB raised concerns that the AfBA disclosure “included marketing statements touting the benefit and value of the affiliated entities,” such as by saying that the affiliates are “in a unique position to provide you with exceptional value and service.”
The CFPB concluded that, based on these disclosures, the realty company and its affiliates violated RESPA’s prohibition on the exchange of referral fees by affirmatively referring consumers to the affiliates and then collecting profits from the affiliated entities, without satisfying the “safe harbor” under RESPA for AfBAs. The CFPB ordered the company to use AfBA disclosures that do not materially deviate from the model disclosure in Appendix D, to update its training and guidance documents on AfBAs, and to pay a civil money penalty of $500,000 to the CFPB. HUD, which previously had authority over RESPA, initially referred this matter to the CFPB.