The CFPB has announced that it has issued a Consent Order to settle charges that a mortgage lender and its principal violated RESPA Section 8 by paying illegal kickbacks to a bank in exchange for mortgage loan referrals.
According to the Consent Order, the lender had entered into an agreement with a bank in which the bank referred borrowers to the lender in exchange for kickbacks disguised as payments made by the lender for renting office space within the bank. The Order states that during the relevant period, the principal had “managerial responsibility for [the lender] and materially participated in the conduct of its affairs,” thereby making him a “related person” for purposes of Dodd-Frank Title 10. The bank was not named as a target.
The Section 8 kickback prohibition allows payments for good or facilities actually furnished or services actually performed. The Consent Order references a 1996 HUD policy statement that discussed this provision in the context of office rentals. The policy statement indicated that in determining whether rent payments were disguised referral fees, HUD would look at the general market value of the rental property, not its value to a settlement service provider.
According to the Consent Order, the average monthly rent paid by the mortgage lender to the bank was substantially more than monthly rents for comparable space not located within a bank. The Consent Order requires the defendants to pay $27,076 as disgorgement of origination fees the lender collected from loans referred by the bank during the relevant period. The defendants must also pay a $54,000 civil penalty to the CFPB. The lender and principal did not admit or deny the CFPB’s findings and conclusions set forth in the Consent Order.
This settlement, together with other recent CFPB RESPA Section 8 settlements involving a law firm and a home builder, indicates that the CFPB intends to take a rigorous approach to RESPA enforcement, including against defendants who are smaller market players. It is also another example of the CFPB’s intention to continue targeting individuals in enforcement actions. Under these circumstances, it is imperative that settlement service providers who rent space from referral sources review their rental arrangements to make sure they are RESPA compliant.