The CFPB recently issued Frequently Asked Questions (FAQs) addressing the referral fee and fee splitting prohibitions under Section 8 of the Real Estate Settlement Procedures Act (RESPA). The CFPB also rescinded its Compliance Bulletin 2015-05, RESPA Compliance and Marketing Services Agreements.

As previously reported, Bulletin 2015-05 is a good example of the adage “Be careful what you ask for, you may get it.” The CFPB issued Bulletin 2015-05 in response to requests from the residential mortgage settlement service industry for guidance on the legality of marketing service agreements (MSAs). In the Bulletin’s first paragraph, the CFPB set 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 (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.” The Bulletin did not provide guidance on how to structure a compliant MSA and instead simply summarized the CFPB’s concerns with MSAs. In rescinding the Bulletin, the CFPB states that the rescission “does not mean that MSAs are per se or presumptively legal” and that “as explained in the FAQs, whether a particular MSA violates RESPA Section 8 will depend on the specific facts and circumstances.”

In the FAQs, the CFPB addresses RESPA Section 8 in general, MSAs, and gifts and promotional arrangements. The FAQs distinguish a referral from marketing by providing that a referral includes a written or oral action directed to a person, whereas “a marketing service is not directed to a person; rather it is generally targeted at a wide audience. For example, placing advertisements for a settlement service provider in widely circulated media (e.g., a newspaper, a trade publication, or a website) is a marketing service.” The FAQs provide that “[w]hether a particular activity is a referral or a marketing service is a fact-specific question for purposes of the analysis under RESPA Section 8(a).”

Among other observations made by the Bureau regarding MSAs, the FAQS include the following:

  • Entering into, performing services under, and making payments under MSAs are not, by themselves, prohibited acts under RESPA or Regulation X.
  • The analysis under RESPA Section 8 depends on the facts and circumstances, including the details of the MSA and how it is both structured and implemented.
  • If an MSA involves an agreement or understanding to refer business incident to or part of a settlement service in exchange for a fee, kickback, or thing of value, then the MSA or conduct under the MSA is prohibited.
  • If the MSA serves as a method of splitting charges made or received for real estate settlement services in connection with a federally related mortgage loan, other than for services actually performed, the MSA or the conduct under the MSA is prohibited.
  • If the MSA or conduct under the MSA “reflects an agreement for the payment for bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed, the MSA or the conduct is not prohibited.”

While the FAQs may not provide the level of detailed guidance sought by the industry, the FAQs do not take the decidedly negative tone towards MSAs found in Bulletin 2015-05, and that alone likely will be viewed by the industry as an improvement.

With regard to gifts, consistent with an informal position taken by the CFPB, and also by the U.S. Department of Housing and Urban Development when it had jurisdiction to regulate under, interpret and enforce RESPA, the FAQs provide that RESPA Section 8 does not prohibit a settlement service provider from giving a gift or incentive to a consumer for doing business with the provider. However, the FAQs also provide that giving an incentive to a consumer in exchange for the consumer “referring other business” to the provider is prohibited. Additionally, the FAQs indicate that providing gifts to referral sources in exchange for referrals is prohibited, and that “[t]here is no exception to RESPA Section 8 solely based on the value of the gift or promotion.” The latter point likely is intended to address the incorrect view that providing items of nominal value for the referral of settlement service business is permitted under RESPA.

With regard to promotional activity, the FAQs address the Regulation X exemption from the RESPA Section 8 referral fee and fee splitting prohibitions for normal promotional and educational activities that are not conditioned on the referral of business and that do not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement service business. Consistent with the guidance on MSAs, the FAQs provide that whether a particular item or activity meets the conditions for the Regulation X normal promotional and educational activities exemption depends on the facts and circumstances. The FAQs emphasize that to qualify for the exemption, an item or activity must satisfy the conditions that it is not conditioned on the referral of business, and that it does not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement service business. The FAQs set forth fact patterns that are more likely to satisfy the exemption, and then address “slight changes to these fact patterns” that may constitute a RESPA Section 8 violation.