Compliance Blog

Written by Brandy Bruyere, Regulatory Compliance Counsel

Last week, the CFPB announced an enforcement action against RealtySouth, Alabama’s largest real estate firm, for violation of RESPA’s prohibition against kickbacks for referrals. These kinds of questions come up with some frequency from our members. In light of this reminder that compliance with both new and old rules is important, today we will focus on RESPA kickbacks and affiliated business relationships.

Under Section 8 of RESPA, implemented by 12 CFR 1024.14, has a broad prohibition against receiving “any fee, kickback, or other thing of value” in exchange for referrals for “business incident to or part of a settlement service involving a federally related mortgage.” Meanwhile, the definitions of some of these terms only further broaden the scope of the prohibition.  RESPA defines a “thing of value” in an extremely broad manner as “any payment, advance, funds, loan, service, or other consideration.” The definition of “settlement service” is also expansive, including things like title insurance, credit reports, pest inspections, the services of a realtor, and loan origination activities.

However, RESPA does permit referrals as part of affiliated business relationships, so long as certain requirements are met. First, credit union must provide proper disclosures which notify the member of the affiliated relationship and provide an estimate of the affiliated provider’s charges. Second, the credit union cannot require the member to use the affiliate’s services. Finally, the only “thing of value” the credit union can receive is the return on investment that results from having ownership interest in the affiliate. This provision does not bar the affiliate from receiving payments for services actually provided to the member.

In the case of RealtySouth, the company did not meet these requirements. RealtySouth used standard contract language that required home buyers to use title and closing services provided by its affiliate, TitleSouth. RealtySouth even at times advised their agents that home buyers were required to use its affiliates for services relating to the transaction. Meanwhile RealtySouth was also not using compliant disclosures for the affiliated business relationship. While RESPA does not prohibit referrals to affiliates for settlement-related services, the particular disclosures are required to avoid violating Section 8. If your credit union refers members to certain affiliates for settlement services,  Appendix D to Part 1024 includes a model Affiliated Business Arrangement Disclosure which credit unions can use to ensure that these kinds of referrals are properly disclosed to members.

CUSO Rule Deadline Approaching. Speaking of affiliates, we would just like to remind everyone that NCUA’s new CUSO reporting requirements go into effect on June 30^th, 2014. For more information on the rule, check out this NCUA Letter to Credit Unions and its enclosures.

Upcoming NCUA Webinar. On June 25^th, 2014 at 2:00 PM, NCUA will host a free webinar, How to be in Compliance with OFAC and FinCEN (Part 2). This is the second of two sessions on this topic, the first of which took place on May 21^st. For those who are interested, here is the registration page for this webinar.

Will Work for Food. Lemmy is in constant need of training from distractions while on walks. One tool we like to use is his backpack, especially since during the summer, this means he can carry his own water on long walks! In case you can't tell, he's rather begrudging about the backpack. However, by keeping him a bit more occupied, it does lead to less leash-pulling which is important when your dog weighs over 130 lbs!