In Freeman, et al. v. Quicken Loans, Inc., 132 S. Ct. 2034 (2012), a unanimous Supreme Court ruled against Petitioners – three couples who obtained mortgage loans from Quicken – in their effort to establish an expansive theory of liability under the Real Estate Settlement Procedures Act (“RESPA”). Specifically, Petitioners claimed that Quicken violated 12 U.S.C. § 2607(b) of RESPA by charging them fees for which it provided no services in return.
At issue before the Court was whether Petitioners’ claims were cognizable under § 2607(b). In pertinent part, § 2607(b) provides that “no person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service…other than for services actually performed.” Petitioners argued that this language did, in fact, apply to a settlement-service provider collecting and retaining an unearned settlement charge. In their view, there was no requirement for a provider to share that fee with a third party in order for liability to attach. To support their position, Petitioners cited a 2001 policy statement issued by the U.S. Department of Housing and Urban Development (“HUD”) and later adopted by the Consumer Financial Protection Bureau (“CFPB”).
The Court framed Petitioners’ argument as an attempt to merge the two stages envisioned by § 2607(b). Under Petitioners’ interpretation of § 2607(b) “a settlement-service provider [could] ‘make’ an unearned charge (stage one) and then ‘accept’ (stage two)” the “portion, split, or percentage” of that charge consisting of 100 percent “other than for services actually performed.” For Petitioners, the “consumer is the person who ‘give[s]’ a ‘portion, split, or percentage’ of the charge to the provider who ‘accept[s]’ it.”
The Court rejected these arguments and, as a consequence, the view set forth in the policy statement. The Court held that the policy statement “[went] beyond the meaning of” § 2607(b). In the Court’s view, § 2607(b) covered only those situations where a provider divides a fee with a third party. The Court reasoned that § 2607(b) clearly contemplates two distinct exchanges. The Court took the position that “a ‘charge’ is ‘made’ to or ‘received’ from a consumer by a settlement-service provider. That provider then ‘give[s],’ and another person ‘accepts[s],’ a ‘portion, split, or percentage’ of the charge.” The Court concluded that “Congress’s use of different sets of verbs, with distinct tenses, to distinguish between the consumer-provided transaction (the ‘charge’ that is ‘made or received’) and the fee-sharing transaction (the ‘portion, split, or percentage’ that is ‘give[n]’ or ‘accept[ed]’) would be pointless” if the Court adopted Petitioners’ view.
The Court bolstered its position with a textual analysis of the phrase “portion, split, or percentage.” The Court cited the dictionary definitions of each term, and applied the canon noscitur a sociis (“it is known by its associates”), to conclude that the “normal usage” of these terms connoted less than the whole or less than all. As such, Petitioners’ argument that a settlement-service provider could “accept” 100 percent, or the entirety, of an unearned charge was fundamentally flawed. For the Court, Congress’s use of the phrase “portion, split, or percentage” demonstrated that § 2607(b) liability attached only where a provider divided part of a settlement-service fee with some other party.
The Court also rejected the second part of Petitioners’ argument because it “would make lawbreakers of consumers – the very class for whose benefit § 2607(b) was enacted.” The Court reasoned that “it is the logical consequence [of Petitioners’ position] that a consumer would be liable to himself…which provides strong indication that something in petitioners’ interpretation is amiss.” The Court also noted that the 2001 policy statement refuted the second part of Petitioners’ argument, citing the policy statement’s position that “HUD is, of course, unlikely to direct any enforcement actions against consumers for the payment of unearned fees.” Similarly unavailing was Petitioners’ contention that an imputed mens rea (“criminal intent”) requirement in § 2607(b) protected either some, or perhaps all, consumers from liability under RESPA. The Court found it “unthinkable” that an implicit mens rea would be used to shield some or all consumers from criminal liability under RESPA. Even more inconceivable was the proposition that Congress would use such obscure language to protect consumers from liability.
Finally, the Court dismissed Petitioners’ remaining arguments. The Court was unmoved by Petitioners’ contention that reading each term in the phrase “portion, split, or percentage” to mean the same thing rendered this language surplusage. The Court stated that “[P]etitioners interpretation no more achieves [avoiding surplusage] than ours does.” Petitioners also asserted that § 2607(b) had to apply to unearned, undivided fees or this section would be “largely surplusage” to § 2607(a)’s prohibition against kickbacks. The Court again disagreed, concluding that the explicit language set forth in the two sections addressed different conduct. The Court found Petitioners other arguments – focusing on legislative purpose and avoiding absurd results – similarly unpersuasive.
The result of the Court’s decision in Quicken Loans is that a plaintiff, in order to establish a § 2607(b) violation, must demonstrate that a settlement-service provider shared a service fee with a third party. The Court’s decision also represents an early setback for the CFPB, which, in 2011, assumed responsibility for enforcing RESPA and adopted HUD’s long-standing interpretation of § 2607(b).
Summer associate Richard Alex Derkson assisted in the preparation of this article.