On January 31, 2017, the Consumer Financial Protection Bureau (“CFPB”) published a Consent Order with Prospect Mortgage, LLC (“Prospect”) for alleged violations of the Real Estate Settlement Procedures Act (“RESPA”) prohibitions against kickbacks and unearned fees, commonly referred to as “RESPA Section 8”. RESPA Section 8 states that “no person shall give and no person shall accept any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, 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”. RESPA Section 8 applies to, among others, mortgage lenders, title companies, lawyers, servicers, and real estate agents.
The CFPB alleges that Prospect entered into a series of agreements with two real estate brokerage agencies and a loan servicer for mortgage origination referrals. The CFPB noted that Prospect violated RESPA Section 8 by:
1. Using lead agreements to pay brokers for referrals;
2. Using Marketing Services Agreements, commonly referred to as “MSAs” to pay brokers for referrals;
3. Using desk licensing agreements to pay brokers for referrals;
4. Encouraging brokers and agents to require consumers to loan obtain pre-approvals with Prospect’s loan officers
5. Paying the servicer for referrals;
6. Using a third-party’s website advertising to pay real estate brokers for referrals; and
7. Encouraging brokers to use fees and credits to pressure consumers into using Prospect.
The CFPB ordered Prospect to pay a $3.5 million dollar civil money penalty to the bureau. Further, Prospect may still have liability for any private civil action available under RESPA Section 8 to any consumer harmed by these actions, is prohibited from engaging in the activities described in the Consent Order, and must undergo compliance training, and conduct extensive reporting and recordkeeping.
Additionally, and in a departure from the CFPB’s prior RESPA Section 8 enforcement actions, the CFPB also entered into Consent Orders with the two real estate brokerages for accepting the payments in violation of the law. This is the first time the CFPB has enforced RESPA Section 8’s prohibition against kickbacks against real estate brokers under the common use of MSAs, desk licensing, and co-marketing agreements. The two brokerages agreed to pay a combined $230,000.00 in fines and disgorgement due to the alleged violations and may still be held liable under related consumer private causes of action.
The actions by the CFPB reinforce Richard Cordray’s position that the bureau will analyze marketing arrangements between settlement service providers with great scrutiny. The orders rely on internal communications and statements to demonstrate that the facially lawful arrangements under RESPA Section 8 were likely only a means of circumventing the anti-kickback provisions while still paying for referrals. It’s imperative that all settlement service providers carefully evaluate any marketing or business activities with other settlement service providers to ensure compliance with RESPA.