By: Edward R. Milhorn, Compliance Consulting Director
Earlier this month, the Consumer Financial Protection Bureau (CFPB) rescinded Compliance Bulletin 2015-05, titled “RESPA Compliance and Marketing Services Agreements (MSA).” The CFPB determined that the bulletin did “not provide the regulatory clarity needed on how to comply with RESPA and Regulation X.” In an attempt to provide the missing clarity from the previous bulletin and promote a culture of compliance as it pertains to RESPA Section 8, the CFPB published a series of Frequently Asked Questions (FAQs). Specifically, the FAQs address the general requirements of RESPA Section 8, and the application of these requirements to gifts, promotional arrangements and MSAs.
As it pertains to gifts, the FAQs indicate that Section 8 does not prohibit a settlement service provider from giving a gift to a consumer for doing business with the provider. However, the FAQs note that giving an incentive to a consumer in exchange for the consumer referring business to the provider is prohibited. Additionally, the FAQs indicate there “is no exception to RESPA Section 8 solely based on the value of the gift or promotion.” This FAQ reasserts that there is no de minimis amount under RESPA Section 8 when applying the prohibition on the giving of gifts in exchange for the referral of settlement service business.
The FAQs address promotional activity by discussing the Regulation X exemption from the RESPA Section 8 referral fee and fee splitting prohibitions. As with any evaluation for compliance under RESPA Section 8, qualification for the exemption is largely dependent on the facts and circumstances surrounding the promotional or educational activity. To qualify for the exemption, the promotional or educational activity must not be conditioned on the referral of business and cannot involve the paying of expenses that otherwise would be incurred by persons in a position to refer settlement service business. Additionally, the FAQs include examples of patterns that are likely to satisfy the conditions for the exemption. The FAQs also include examples of how slight alterations to the same patterns could result in a RESPA Section 8 violation, thus displaying the thin margin for error when it comes to RESPA Section 8.
The highlight of the FAQs is the new information addressing MSAs. First, the FAQs clarify the difference between a referral and a marketing service by indicating that providing a referral includes a written or oral action directed to a person; however, “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.” Additionally, similar to the guidance regarding promotional activities, the FAQs reiterate that whether “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).” When considering an MSA, institutions should perform an analysis to ensure the agreement is compliant, and that “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.”
Although MSAs will continue to be an area of increased regulatory scrutiny when it comes to potential RESPA Section 8 violations, the FAQs indicate that “entering into, performing services under, and making payments under MSAs are not, by themselves, prohibited acts under RESPA or Regulation X.” However, the FAQs are clear that the following are strictly prohibited under RESPA Section 8 when it comes to MSAs:
- If the 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;
- 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; or
- 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.
Although the FAQs do not quite rise to the level of detail that the industry has been clamoring for, the information provided with respect to MSAs is decidedly an improvement over the rescinded guidance in bulletin 2015-05. For those wanting to learn more about the CFPB’s RESPA FAQs, you can find them here. Additionally, for those interested in reading the CFPB’s statement regarding the FAQs, that can be found here.