CFPB Issues Compliance Bulletin on MSAs
By Eliott C. Ponte, Regulatory Compliance Counsel
Last week, the Consumer Financial Protection Bureau (CFPB) issued a compliance bulletin regarding marketing services agreements (MSAs) under the Real Estate Settlement Procedures Act (RESPA). The CFPB stated it issued the compliance bulletin because of grave concerns about the use of MSAs to evade RESPA. Readers should note that the compliance bulletin issued is non-binding.
What's The Rub?
Section 8(a) of RESPA prohibits the giving and accepting of 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. 12 U.S.C. 2607(a); see 12 C.F.R. 1024.14(b). While RESPA's prohibition on paying referral fees are broad, section 8(c) allows for the lawful payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed. 12 U.S.C. 2607(c); see 12 C.F.R. 1024.14(g). MSAs, which are generally marketing agreements and initiatives with settlement services, are often structured to meet the requirements of this exception. The compliance bulletin, however, hints that the CFPB does not believe MSAs should fall under this exception. In fact, the compliance bulletin states that the CFPB's efforts have found that many MSAs are designed to evade RESPA's prohibition on the payment and acceptance of kickbacks and referral fees.
Guidance? No!
One might expect that when a regulator highlights such a grave concern, the regulator would provide guidance to correct any identified problems. Unfortunately, the compliance bulletin did not issue guidance explaining how to lawfully form and operate a MSA. Instead, the compliance bulletin publically praised the decision of some lenders to dissolve their agreements with MSAs:
In recent months, various mortgage industry participants have publicly announced their determination that the risks and complexity of designing and monitoring MSAs for RESPA compliance outweigh the benefits of entering the agreements. Accordingly, certain lenders have dissolved existing agreements and decided that they will no longer enter into MSAs. The Bureau encourages all mortgage industry participants to consider carefully RESPA's requirements and restrictions and the adverse consequences that can follow from non-compliance.
The compliance bulletin also failed to give meaningful guidance as to what type of MSA arrangement would be allowed under RESPA. According to the compliance bulletin, any MSA that involves an exchange of a thing of value will likely violate RESPA:
In the Bureau's experience, determining whether an MSA violates RESPA requires a review of the facts and circumstances surrounding the creation of each agreement and its implementation. The nature of this fact-intensive inquiry means that, while some guidance may be found in the Bureau's previous public actions, the outcome of one matter is not necessarily dispositive to the outcome of another. Nevertheless, any agreement that entails exchanging a thing of value for referrals of settlement service business involving a federally related mortgage loan likely violates RESPA, whether or not an MSA or some related arrangement is part of the transaction.
Going Forward
The CFPB is giving the industry clear indications that MSAs will be in their crosshairs in the coming months. Credit unions that have active MSAs may want to review their agreements to ensure it is properly structured to avoid RESPA violations. These credit unions may also want to review Appendix B to Part 1024, which contains illustrations of RESPA violations. Another helpful resource is NAFCU's Monthly Compliance Newsletter (login required), which recently featured an article on RESPA Section 8 violations.