The residential mortgage settlement service industry has been asking the CFPB for guidance on the legality of marketing service agreements (MSAs) under RESPA. When questioned on the issue last week at a House Financial Services Committee hearing, Director Cordray indicated that the CFPB would issue guidance. One week later the CFPB has now issued non-binding guidance in the form of Bulletin 2015-05.
In the first paragraph the CFPB sets the tone for the Bulletin by stating that (1) while it has received numerous inquiries and whistleblower tips “describing the harm that can stem from the use of MSAs, [it] has not received similar input suggesting the use of those agreements benefits either consumers or industry” and that (2) based on the CFPB’s investigative efforts, “it appears that many MSAs are designed to evade RESPA’s prohibition on the payment and acceptance of kickbacks and referral fees.” In the end, the Bulletin provides no actual guidance on how to structure a compliant MSA. Instead it simply summarizes CFPB concerns with MSAs.
Presumably based on its position that RESPA section 8(c)(2) is not an exemption from the RESPA section 8(a) referral fee prohibition, the CFPB states that “any agreement that entails exchanging a thing of value for referrals of settlement service business involving a federally related mortgage loan likely violates RESPA, whether or not an MSA or some related arrangement is part of the transaction.” Without specifically identifying any past CFPB enforcement action, the CFPB describes MSA issues that it considered to be harmful to consumers in the Lighthouse Title, Realty South, Amerisave and Genuine Title settlements.
The CFPB addresses the use of a third party to value services to be performed under an MSA in stating that “independently established market-rate compensation for marketing services, alone, does not suffice to ensure the legality of an MSA.” The CFPB also addresses the related issue of monitoring whether the services contemplated under an MSA are in fact performed in stating it found that “efforts made to adequately monitor activities that in turn are performed by a wide range of individuals pursuant to MSAs are inherently difficult.” These statements clearly convey that an appropriate valuation of marketing services by itself does not make an MSA compliant with RESPA, and that demonstrating to the CFPB that the marketing services paid for were actually performed may prove to be difficult.
The CFPB concludes with the ominous statement that “the Bureau’s experience in this area gives rise to grave concerns about the use of MSAs in ways that evade the requirements of RESPA. In consequence, the Bureau reiterates that a more careful consideration of legal and compliance risk arising from MSAs would be in order for mortgage industry participants generally.”