In a significant action, the Consumer Financial Protection Bureau (CFPB) has abruptly rescinded a 2015 compliance bulletin concerning marketing services agreements (MSAs) while also issuing RESPA Section 8 (referral fee prohibition) guidance in the form of responses to frequently asked questions (FAQs). We explain more below.

What Happened — Bulletin 2015-05 Regarding Marketing Services Agreements Rescinded

Section 8 of RESPA prohibits, among other things, the use of certain marketing arrangements that generate unearned fees or kickbacks. In 2012, the CFPB informed lenders and mortgage brokers of formal investigations targeting several companies believed by the CFPB to have violated RESPA in this regard. In the next few years, the CFPB entered into consent orders with numerous companies to resolve such investigations.

With industry expecting formal guidance, the CFPB instead, in 2015, issued Compliance Bulletin 2015-05. In the bulletin, the CFPB took a decidedly negative view of MSAs and suggested that MSAs involving payments for advertising or promotional services may instead, in some cases, be deemed to be disguised compensation for referrals. In other words, even an otherwise compliant MSA will not be enough to ensure compliance with Section 8 if the relationship involves referrals in exchange for a “thing of value.”

The 2015 bulletin otherwise merely repeated and emphasized what the enforcement actions had already made clear: MSAs are not just a huge risk because an otherwise perfectly acceptable agreement might still be implemented in violation of the law. That is, any MSA (even a facially compliant one) “that entails exchanging a thing of value for referrals of settlement service business … likely violates RESPA, whether or not an MSA or some related arrangement is part of the transaction.” The Bureau likewise noted several areas where risks were heightened, including steering business based on referral fees, collecting payments without doing the work, failing to disclose affiliations, and charging or paying fees based on referral revenue, among many others.

Now, the CFPB has decided to rescind the entire bulletin, and instead provide generic FAQs concerning compliance with RESPA, most of which has nothing to do with MSAs per se. Further, in his cover announcement, the CFPB’s Bryan Schneider, who leads the SEFL (Supervision, Enforcement and Fair Lending) division, merely announced as follows: “The Bureau’s rescission of the Bulletin does not mean that MSAs are per se or presumptively legal. Whether a particular MSA violates RESPA Section 8 will depend on specific facts and circumstances, including the details of how the MSA is structured and implemented. MSAs remain subject to scrutiny, and we remain committed to vigorous enforcement of RESPA Section 8.”

What Happened — Issuance of FAQs on RESPA Section 8 Referral Fee Prohibition

Aside from the MSA commentary and rescission of Compliance Bulletin 2015-05, which is likely to be the focus of most of the headlines, the FAQs address Section 8 generally. While largely mirroring RESPA itself and offering little in the way of new guidance or illustration of what Section 8 permits and prohibits, this is the first issuance of CFPB guidance on Section 8 (as distinct from TRID or other RESPA guidance) and is noteworthy for that reason alone.

In discussing whether providing gifts to persons making referrals violates RESPA, the CFPB comments that to the extent the gifts are targeted to particular entities that are also referral sources, it may violate RESPA; however, if the gifts are provided “to a broader set of recipients, such as the general public or all settlement service providers offering similar services in a given locality, then that may indicate that the promotional item is not conditioned on referral of business.” To like effect is an additional comment that a payment to a referring entity is more likely to violate RESPA if the payment is received “more often than [for] other persons,” as this is indicative of conditioning the payment on referrals.

Also worth highlighting is CFPB’s statement on page 11 of the FAQs that a “referral” under RESPA includes merely “handing clients the contact information of another settlement service provider” if “that happens to result in the client using that other settlement service provider.”

To view the FAQs, click here.

Why It Matters

Is the CFPB rewriting history, effectively undoing all those Cordray-era RESPA enforcement actions? Is the Bureau creating more rather than less confusion by dropping Bulletin 2015-05 without a suitable replacement? And will the CFPB now actively pursue enforcement actions over perceived referrals that merely involve giving a client a card with contact information for an entirely optional service provider? In coming days we will be taking a closer look at the FAQs and advising our clients on the material changes. Let us know if we can be of assistance.