CFPB Issues Guidance on Marketing Services Agreements
The Consumer Financial Protection Bureau yesterday issued a bulletin providing guidance on controversial marketing services agreements.
The bulletin (http://files.consumerfinance.gov/f/201510_cfpb_compliance-bulletin-2015-05-respa-compliance-and-marketing-services-agreements.pdf) provides an overview of the federal prohibition on mortgage kickbacks and referral fees and describes examples from the Bureau’s enforcement experience as well as the risks faced by lenders entering into these agreements.
In a press release accompanying the guidance, CFPB Director Richard Cordray said the guidance was issued to remind participants in the mortgage industry of the prohibition of kickbacks and referral fees under RESPA and describes risks posed by entering into MSAs.
“We are deeply concerned about how marketing services agreements are undermining important consumer protections against kickbacks,” Cordray said. “Companies do not seem to be recognizing the extent of the risks posed by implementing and monitoring these agreements within the bounds of the law.”
RESPA is designed to eliminate kickbacks or referral fees that tend to increase unnecessarily the costs of settlement services. The law covers “myriad settlement services,” including title searches, examinations and insurance; services by an attorney; document preparation; property surveys; rendering of credit reports or appraisals; inspections; services rendered by a real estate agent or a broker; and loan origination, processing and underwriting.
The bulletin said that while marketing services agreements are usually framed as payments for advertising or promotional services, in some cases the payments are actually disguised compensation for referrals. It said any agreement that entails exchanging a thing of value for referrals of settlement service business likely violates federal law, regardless of whether a marketing services agreement is part of the transaction.
“Impermissible actions that some MSAs attempt to disguise, such as the steering of business in connection with kickbacks and referral fees, may result in consumers paying higher prices for mortgages than would likely be the case without disguised kickback or referral fees. These practices also tend to indirectly undermine consumers’ ability to shop for mortgages, which can raise costs for consumers. In terms of thwarting shopping, one investigation that ended with an enforcement action revealed that consumers’ ability to shop was hindered when a settlement service provider buried the disclosure that consumers can shop for settlement services in a description of the services that its affiliate provided.”
Also, while marketing services agreements are usually framed as payments for advertising or promotional services, in some cases the payments are actually disguised compensation for referrals. The Bulletin says any agreement that entails exchanging a thing of value for referrals of settlement service business likely violates federal law, regardless of whether a marketing services agreement is part of the transaction.
“The CFPB noted that a title insurance company that entered into marketing services agreements where the fees paid by the company were based in part on the number of referrals it received, as well as the revenue generated by those referrals. In another case, a settlement service provider did not disclose its affiliate relationship with an appraisal management company and did not tell consumers that they had the option of shopping for services before directing them to the affiliate.
Pete Mills, senior vice president of residential policy and member engagement with the Mortgage Bankers Association, said “the one clear test that emerges from the guidance is that if the MSA involves a referral of any kind, then it is a violation of RESPA.”
In August, MBA requested that the CFPB issue clear rules regarding use of MSAs, noting that because RESPA is a criminal statute, the uncertainty caused by changes in how MSAs are perceived, require “clear and prospective resolution.”
“While this guidance is helpful, it reaffirms what the CFPB has been saying for months–MSAs are very high-risk and if a company has an MSA in place and there are referrals involved, it’s a violation of RESPA,” Mills said. “That’s serious business, since RESPA is a criminal statute. MBA continues to believe that this represents a new interpretation of MSAs under RESPA, and should be done through notice and comment rulemaking. Clear rules of the road are the best way to ensure a fair and competitive market and to protect consumers.”
