The Consumer Financial Protection Bureau (CFPB) issued a compliance aid in October 2020 to provide regulated entities greater clarity around the Real Estate Settlement Procedures Act (RESPA) and certain provisions of Regulation X. The compliance aid, presented in the form of Frequently Asked Questions (FAQs), focuses on RESPA Section 8, which prohibits certain actions related to federally related mortgage loans.
The Section 8 FAQs replace prior CFPB RESPA guidance, Compliance Bulletin 2015-05, RESPA Compliance and Marketing Services Agreements, which was issued in October 2015. Compared to the prior guidance, which takes a very critical view of marketing services agreements (MSAs), the FAQs cover a wider scope, including additional guidance on the permissibility of MSAs and circumstances under which gifts and promotional activities are allowed. Currently, under Section 8(a), kickbacks for business referrals related to, or part of, settlement services involving federally related mortgage loans, are prohibited. Section 8(b) prohibits unearned fee arrangements (i.e., splitting charges made or received for settlement services, except for services actually performed) in connection with federally related mortgage loan transactions.
The FAQs clarify the definition of prohibited referrals and the distinction between referrals and marketing services. They note that prohibited referrals are not limited to those directed to consumers; referrals may include those directed to a number of sources, such as appraisers, real estate agents, title companies and agents, lenders, mortgage brokers, or companies that provide information in connection with settlements, such as credit reports and flood determinations.
In the FAQs, the CFPB clarifies that entering into, performing services under, and making payments under MSAs are not necessarily prohibited acts by RESPA or Regulation X. 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. A lawful MSA is an agreement for the performance of marketing services, and where payments under the deal are reasonably related to the value of services actually performed.
The FAQs also provide examples of unlawful MSAs, which may include these conducts:
- 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
- An agreement designed or implemented in a way to disguise the payment for kickbacks or split charges.
The CFPB intends to continue to enforce RESPA Section 8 vigorously, with a particular focus on MSAs. As such, financial institutions should review mortgage origination practices related to these agreements, as well as promotional activities, gifts and incentives, and formal or informal arrangements with mortgage settlement service providers to ensure compliance with RESPA Section 8 and the CFPB FAQs.
Additionally, financial institutions should consider the following practical steps:
- Review current and proposed MSAs to ensure that payments for marketing services do not exceed the fair market value of the services performed and the agreements do not include payments for referrals
- Ensure that formal and informal arrangements with relevant providers, such as appraisers, real estate agents, title companies and agents, and mortgage brokers, do not involve giving or accepting anything of any value pursuant to an agreement or understanding to refer business
- Review consumer-facing promotional activities to ensure that the institution refrains from providing incentives to consumers in exchange for the consumer referring other business
- Ensure that policies, procedures, and training materials provide adequate guidance to employees and relevant service providers regarding RESPA compliance obligations.