The Consumer Financial Protection Bureau (CFPB) recently provided guidance discouraging mortgage industry participants from entering into marketing services arrangements (MSAs). An MSA is an agreement under which a settlement service provider, such as a real estate broker, agrees to market and promote another provider’s services - such as that of a title company - in exchange for payment. MSAs are governed by Section 8(a) of the Real Estate Settlement Procedures Act (RESPA), which prohibits giving or accepting “any fee, kickback or thing of value pursuant to any agreement or understanding … that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person” but allows for “payment to any person … for services actually performed.”

Based on its own investigations into customer complaints, the CFPB concluded that, “MSAs are designed to evade RESPA’s prohibition on the payment and acceptance of kickbacks and referral fees.”

The CFPB acknowledged that the legality of any particular MSA is a fact-specific question, requiring a case-by-case analysis into the circumstances of the creation and implementation of the MSA. Nonetheless, its guidance states that “any agreement that entails exchanging a thing of value for referrals of settlement services business involving a federally related mortgage loan likely violates RESPA, whether or not an MSA or some related arrangement is part of the transaction.” For example, the CFPB penalized a lender for varying the number of mortgages it insured with mortgage insurers based on their agreement to reinsure those mortgages with the lender’s wholly owned reinsurer.  In other enforcement actions, the CFPB also penalized and enjoined lenders who made referrals to settlement service providers, allegedly in violation of RESPA.

Notably, the CFPB failed to provide any guidance on crafting a compliant MSA.

While the CFPB’s guidance is nonbinding, it remains authorized to police RESPA violations on behalf of consumers, and has doggedly done so to the tune of $75 million in penalties issued to date. That entire amount is due almost exclusively to CFPB investigations into the payment of improper kickbacks and referral fees. And, as the CFPB warned, it “intends to continue actively scrutinizing the use of such agreements and related arrangements in the course of its enforcement and supervision work.”