CFPB Rescinds RESPA Compliance and Marketing Services Agreements Bulletin, Provides Clarity on RESPA Fee Prohibition in FAQs

Hinshaw & Culbertson - Consumer Crossroads
Contact

Hinshaw & Culbertson - Consumer Crossroads

The Consumer Financial Protection Bureau (CFPB ) rescinded Bulletin 2015-05, RESPA Compliance and Marketing Services Agreements on October 7, 2020, stating that the bulletin did not provide the regulatory clarity necessary for compliance with the Real Estate Settlement Procedures Act (RESPA) and Regulation X. The CFPB also issued frequently asked questions (FAQs) to clarify when marketing services agreements (MSAs) are acceptable under RESPA.

MSAs are agreements that commonly involve an arrangement where one person agrees to market or promote the services of another and receives compensation in return. An MSA can involve either settlement service providers or third parties. For example, an MSA exists when a mortgage loan originator agrees to market or promote a real estate agent’s services in return for compensation.

Adopted while Richard Cordray was Director of the CFPB, Bulletin 2015-05 stated that it appears many MSAs are designed to evade RESPA's prohibition on the payment and acceptance of kickbacks and referral fees. In contrast to the Bulletin, the CFPB's recent FAQs affirmatively stated that MSAs are not, by themselves, prohibited under RESPA or Regulation X. The FAQs further recognize that MSAs are not referenced in RESPA or Regulation X. Instead, the analysis to determine whether an MSA is permissible depends on the facts and circumstances—including the details of the MSA, and how it is structured and implemented. The CFPB emphasized that it will look to the actual conduct in determining whether there is a RESPA violation, not to the four corners of the MSA.

Relying on the exception in 12 CFR § 1024.14(g)(1)(iv), the CFPB explained that an MSA which provides for payment for marketing services will not violate RESPA as long as the payments are reasonably related to the value of services actually performed. For example, an agreement is prohibited if it is structured or implemented to provide payments based on the number of referrals received. However, if the MSA reflects an agreement for payment for bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed, the MSA does not violate RESPA. The CFPB specifically states that RESPA does not prohibit payments under MSAs if the purported marketing services are actually provided, and if the payments are reasonably related to the market value of the provided services only. Note that under Regulation X, the value of the referral—i.e., any additional business that might be provided by the referral—cannot be taken into consideration when determining whether the payment has a reasonable relationship to the value of the services provided. 12 CFR § 1024.14(g)(2). See also 12 CFR § 1024.14(b).

Overall, an MSA is, or can become, unlawful if the facts and circumstances show that the MSA as structured, or the parties' implementation of the MSA—in form or substance, and including as a matter of course of conduct—involves:

  • an agreement to pay for referrals;
  • an agreement to pay for marketing services, but the payment is in excess of the reasonable market value for the services performed;
  • an agreement to pay for marketing services, but either as structured or when implemented, the services are not actually performed, the services are nominal, or the payments are duplicative; and/or
  • an agreement designed or implemented in a way to disguise the payment for kickbacks or split charges.

By rescinding Bulletin 2015-05 and issuing new FAQs, it is clear that the CFPB has softened its stance on MSAs for now. In general, settlement service providers and third parties may enter into MSAs without expecting a presumption of illegality by the CFPB.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Hinshaw & Culbertson - Consumer Crossroads | Attorney Advertising

Written by:

Hinshaw & Culbertson - Consumer Crossroads
Contact
more
less

Hinshaw & Culbertson - Consumer Crossroads on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.