There is a right way and a wrong way to customize the new Home Loan Toolkit, according to a Consumer Financial Protection Bureau (CFPB) representative who spoke at Bricker & Eckler’s Midwest Financial Services Regulatory and Compliance Conference in Columbus, Ohio, on August 20, 2015. The right way complies with Section 8 of the Real Estate Settlement Procedures Act (RESPA). But beware: the wrong way is considered a RESPA kickback.
Beginning October 3, the Home Loan Toolkit replaces the Special Information Booklet currently given to loan applicants who apply for a mortgage. The new toolkit is required by the Dodd-Frank Act and its regulations — 12 U.S.C. § 2604, 12 C.F.R. §1024.6 and 12 C.F.R. § 1026.19(g).
Companies will be allowed to place their logo on the front cover of the new toolkit. The CFPB’s instructions for adding a logo are available here. Of course, real estate professionals and title companies want to capitalize on this marketing opportunity by emblazoning the toolkit cover with logos galore — title company logos, real estate agent logos, lender logos and mortgage broker logos, to name a few. Suddenly, a seemingly lawful marketing opportunity created by the CFPB itself becomes a major compliance risk. Luckily, the CFPB has provided some rare written guidance on the issue.
The CFPB says that a title company may lawfully place its own logo on the front cover of the toolkit and provide copies to a real estate professional or mortgage broker who, in turn, gives them to consumers shopping for a home. This marketing is not a Section 8 RESPA violation as long as the title company provides its branded toolkit at no cost to the real estate professional or mortgage broker, without any conditions requiring the referral of business, and without retaining any control over whether or how the toolkit will be distributed.
A title company crosses the line, however, and violates Section 8 of RESPA when it places another company’s logo on the front cover of the toolkit and provides free copies to the other company to give to consumers shopping for a home. The title company is essentially paying for the other company’s marketing materials.
In both scenarios, the title company is providing the toolkit to another company free of charge. But, in the first scenario, the title company is putting its own logo on the toolkit, which the CFPB considers “normal promotional and educational activities” permitted under 12 C.F.R. 1024.14(g)(vi). The CFPB considers it a kickback for the title company to put another company’s logo on the toolkit, because it defrays an expense that would otherwise be incurred by the other company.
This is a fine line indeed. To see the CFPB’s written guidance on when the use of a company logo crosses that line and becomes an illegal kickback, see slides 40 and 41 of the CFPB representative’s “Know Before You Owe: The real estate professional’s guide” presentation.