By Scott Birrenkott
The Wisconsin Bankers Association (WBA) has recently received multiple inquiries regarding RESPA’s prohibition against kickbacks and unearned fees. While RESPA’s rules have not changed, the Consumer Financial Protection Bureau (CFPB) has been active recently in taking enforcement actions against Section 8 violations. As such, banks should be mindful of any referrals or offers and review such opportunities diligently with a conservative eye.
RESPA Section 8 prohibits certain actions related to federally related mortgage loans — including a prohibition against giving or accepting a fee, kickback, or thing of value pursuant to an agreement or understanding (oral or otherwise) — for referrals of business incident to or part of a settlement service. It also prohibits unearned fee arrangements, except for services actually performed. Both prohibitions apply to settlement services involving a federally related mortgage loan. Additionally, Section 8 identifies certain payments that are not prohibited. A “fee, kickback, or thing of value” is defined broadly, and can include several arrangements. RESPA provides a long list of examples, including, without limitation: “monies, things, discounts, salaries. . .” and many more. It is also important to note that this can be pursuant to a written or oral agreement and can be an agreement or understanding. Meaning, it may not even be verbalized at all. For example, if a thing of value is received, and connected to business referred, that can be evidence enough of an agreement or understanding. Because of this broad definition, it is recommended that banks take a careful look at any situation that might be considered a violation.
“Settlement service,” which is also defined broadly, includes any service provided in connection with a real estate settlement. Referrals include oral or written action directed to a person that has the effect of affirmatively influencing a person’s selection of a provider of a settlement service or business incident to or part of a settlement service. For example, if a settlement service provider gives referral sources tickets to attend professional sporting events in exchange for referrals as part of an agreement or understanding, such conduct violates RESPA Section 8.
Section 8 also provides a list of payments and arrangements that are not prohibited. Some examples include fees paid to attorneys for services actually rendered, fees paid by a title company to agents for services actually performed in the issuance of a title insurance policy, and fees paid by a lender to its agent for services actually performed in the making of the loan, among others. Additionally, certain arrangements, such as affiliated business arrangements and marketing services agreements are not violations of RESPA Section 8. Such determinations are fact-specific, however, and may require discussion with bank’s legal counsel.
Lastly, Appendix B to Regulation X provides examples to illustrate the application of RESPA to particular fact patterns, including fact patterns for all of the concepts discussed above, indicating whether or not a violation occurred.
CFPB has also published an FAQ on RESPA Section 8 considerations at https://files.consumerfinance.gov/f/documents/cfpb_respa_frequently_asked_questions.pdf
If you have any questions on this topic or other matters of compliance, contact WBA Legal at 608-441-1200 or firstname.lastname@example.org.
Note: The above information is not intended to provide legal advice; rather, it is intended to provide general information about banking issues. Consult your institution’s attorney for specific legal advice or assistance.