Supreme Court Curtails Effort to Expand RESPA

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In a case very closely watched by the financial services industry, the Supreme Court yesterday unanimously rejected the effort to broaden the reach of the Real Estate Settlement Procedures Act (“RESPA”). HUD, consumer advocates, and class action lawyers had long sought to use RESPA’s anti-kickback provision to challenge residential mortgage closing costs as “unearned fees,” and to do so without regard to whether or not they were actually split or divided between two actors. In its opinion, the Court held that to establish a violation of that section, “a plaintiff must demonstrate that [an allegedly unearned fee] for settlement services was divided between two or more persons.” Freeman v. Quicken Loans, Inc., 566 U.S. ___ (May 24, 2012). Morrison & Foerster filed the lead industry amicus brief in support of that result, on behalf of the American Bankers Association, American Financial Services Association, Consumer Bankers Association, Consumer Mortgage Coalition, Housing Policy Council of the Financial Services Roundtable, Independent Community Bankers of America, and Mortgage Bankers Association.

Class action lawyers had long sought to establish that Section 8(b) of RESPA allowed them to challenge closing cost charges—often pejoratively labeled “junk fees”—as simply excessive. They spoke publicly about this issue as a “Holy Grail,” because such claims would be unaccompanied by any statutory or regulatory guidelines, allowing litigation to be brought in virtually any home loan transaction. Indeed, Quicken and the industry amici took pains to point out that such a result would be the worst of all worlds, given that Congress consciously decided against a rate setting and rate regulation scheme in enacting RESPA, choosing instead to require advance disclosure of the charges at issue.

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