CFPB Retires Previous Marketing Services Agreement Guidance; Issues new Frequently Asked Questions on RESPA Section 8 and MSAs | book age

On Oct. 7, the Consumer Financial Protection Bureau (CFPB) took steps to clarify its interpretation of how billing service providers comply with the “no kickbacks” and “unearned fees” provisions of Section 8 of the Real Estate Transactions Act (Real Estate Settlement Procedures Act, RESPA). by publishing a new series of Frequently Asked Questions (FAQs). The FAQs provided several concrete examples to show what activities are permitted under these regulations.

At the same time, the CFPB retired its 2015 RESPA Compliance and Marketing Services Agreements bulletin, which contained guidance on Marketing Service Agreements (MSAs), and replaced it with FAQs that specifically discuss examples of what MSAs are under the Section and what is not 8. The new FAQs recognize that MSAs are legal unless their provisions or implementation violate specific requirements of RESPA, are more detailed than the previous guidance, and provide clearer clarity about permissible MSA arrangements.

The new Section 8 and MSA FAQs can be found here.

The CFPB announcement of the 2015 MSA Bulletin Withdrawal can be found here here.

Section 8 FAQs General

The new Section 8 FAQ addresses Section 8 in general and then adds FAQs specifically addressing unearned fees and gifts and promotional activities. The FAQs generally cite and repeat specific provisions of RESPA and related regulations (12 CFR 1024 onwards.). The FAQs then provide some specific comments that help define certain of these issues:

  • Citing 12 USC § 2602(3) and 12 CFR § 1024.2(b), the FAQs state that “prohibited attributions are not limited to those aimed at consumers. They can be directed to a number of sources such as: B. appraisers, real estate agents, title companies and brokers, lenders, mortgage brokers, or companies that provide information related to comparisons such as: B. Credit reports and flood regulations.
  • At the same time, the FAQ notes that a lender or other settlement service provider may generally offer a gift or other inducement to a consumer when doing business with that entity. However, the business may not incentivize a consumer to have the consumer procure a transaction for the business.

Gifts and promotional activities

Regarding gifts and promotional activities, the FAQs noted that they are acceptable if they:

  • Not dependent on a business referral; and
  • Don’t share in paying any costs that the referral source would otherwise incur.

The FAQs provided examples of when such activity is likely would Allowed because (1) they are not dependent on business referrals and (2) they do not involve costs that the referral source would otherwise incur:

  • A settlement agent will host a one-time raffle and include an announcement of the raffle in an email to all past customers and all lenders in town, allowing them to enter regardless of whether they have or are likely to make recommendations to the raffle settlement agent.
  • A title company charges an admission fee equal to the market value for a credit closing training course and invites all local real estate agents, regardless of their status as referral sources. The real estate agents have to pay their own admission fee.
  • A title company regularly hosts free seminars on the latest developments in the real estate market. The seminars are public and are advertised to all real estate agents in the region, regardless of their status as a referral source.

Conversely, the FAQs give slightly modified examples of such specific activities would not be permitted because the activities either (1) depend on business referrals or (2) involve the assumption of costs that would otherwise be incurred by the referral source:

  • A one-time draw similar to the example above, except that the announcement is only sent to selected mortgage loan originators, who receive draw entries for each recommendation that the loan originator makes to refer others to the settlement agent.
  • A course offered by a titling company, similar to the examples above, except that the admission fee is waived if the real estate agent makes a certain number of referrals, or the titling company opens the same continuing education course to the public and charges an admission fee , but waives the fee for all real estate agents (regardless of intermediaries).

Frequently asked questions about MSA

The now-withdrawn 2015 MSA Bulletin has often been criticized for expressing the CFPB’s apparent hostility towards MSAs, while failing to provide any clarity or clear guidance so that parties to such agreements can be reasonably assured of their ability to are to comply with the RESPA restrictions.

The new FAQs offer more clarity. First, the CFPB bulletin withdrawal announcement recognizes that MSAs can be legal unless structured or implemented in a way that violates RESPA. Second, the FAQs provide specific examples of how such MSAs can be structured to avoid important RESPA compliance issues:

  • An MSA agreement is acceptable under RESPA Section 8(c)(2) if:
    • The MSA or conduct under the MSA reflects an agreement to pay, in good faith, salary or compensation or other payment for goods or facilities actually supplied or services actually rendered; or
    • If the alleged marketing services are actually provided and the payments are only in reasonable proportion to the market value of the services provided.
  • An MSA violates RESPA if, according to its express terms or the manner in which the parties actually act under the agreement, it is:
    • An agreement to pay for referrals.
    • A payment arrangement for marketing services, but the payment exceeds fair market value for the services provided.
    • An agreement to pay for marketing services, but either structured or implemented in such a way that the services are not actually provided, the services are nominal, or the payments are duplicated.
    • An arrangement designed or implemented to obfuscate payment for kickbacks or split fees.

Based on this analysis, the FAQs show this example of how an MSA might violate these restrictions: A lender enters into an MSA with a real estate agent who also makes recommendations to the lender. The MSA requires the real estate agent to provide marketing services, including deciding and coordinating direct mail campaigns and media promotions for the lender. The MSA would be in breach of RESPA if (1) the real estate agent either does not actually perform the marketing services identified by the MSA or the real estate agent is paid compensation in excess of the fair market value of those marketing services; or (2) subject to the express or agreed terms of the MSA, the Lender will compensate the real estate agent for client referrals to the Lender.

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