On October 7, the Consumer Financial Protection Bureau (CFPB) took steps to clarify its interpretation of how settlement service providers may comply with the “no kickback” and “unearned fee” provisions of Section 8 of the Real Estate Settlement Procedures Act (RESPA) by promulgating a new set of Frequently Asked Questions (FAQs). The FAQs provided several concrete examples to shed light on what activities are allowed under those provisions.
At the same time, the CFPB withdrew its 2015 “RESPA Compliance and Marketing Services Agreements” Bulletin, which provided guidance regarding Marketing Service Agreement (MSA) arrangements, replacing it with FAQs that specifically discuss examples of what are and are not acceptable MSAs under Section 8. The new FAQs recognize that MSAs are legal unless their provisions or implementation violate specific requirements of RESPA, are more detailed than the prior guidance, and provide more bright line clarity about allowable MSA arrangements.
The new Section 8 and MSA FAQs can be found here.
The CFPB announcement withdrawing the 2015 MSA Bulletin can be found here.
Section 8 FAQs Generally
The new Section 8 FAQs discuss Section 8 generally, and then add FAQs specifically discussing unearned fees, and gifts and promotional activities. The FAQs generally cite to and reiterate specific provisions of RESPA and its related regulations (12 CFR 1024 et seq.). The FAQs then offer some specific comments which help define certain of these issues:
Gifts and Promotional Activities
In regard to gifts and promotional activities, the FAQs noted that they are permitted if they are:
The FAQs provided examples of when such activities likely would be permitted, because (1) they are not conditioned on referrals of business, and (2) they do not involve defraying expenses that would otherwise be incurred by the referral source:
Conversely, the FAQs give slightly modified examples of when such specific activities would not be permitted because the activities are either (1) conditioned on referrals of business, or (2) involve defraying expenses that would otherwise be incurred by the referral source:
The now withdrawn 2015 MSA Bulletin was often criticized for expressing the CFPB’s apparent hostility to MSAs, while not providing clarity or bright guidelines so that parties to such agreements could be reasonably certain of their ability to comply with RESPA restrictions.
The new FAQs offer more clarity. First, the CFPB’s announcement of the withdrawal of the Bulletin recognizes that MSAs can be legal unless they are structured or implemented in a manner that violates RESPA. Second, the FAQs provide specific examples of how such MSAs can be structured to avoid key RESPA compliance issues:
Based on this analysis, the FAQs set forth this example of how an MSA could violate these restrictions: A lender enters into an MSA with a real estate agent that also makes referrals to the lender. The MSA requires the real estate agent to perform marketing services, including deciding on and coordinating direct mail campaigns and media advertising for the lender. The MSA would violate RESPA if (1) the real estate agent either does not actually perform the MSA’s identified marketing services or the real estate agent is paid compensation that is in excess of the reasonable market value of those marketing services; or (2) under the express or understood terms of the MSA, the lender compensates the real estate agent for client referrals to the lender.