On October 8, the Consumer Financial Protection Bureau (the CFPB) published a bulletin discussing whether Marketing Services Agreements (MSAs) violate the Real Estate Settlement Procedures Act (RESPA) by providing a vehicle for unlawful kickbacks. RESPA prohibits mortgage originators and settlement service providers from giving or receiving “any fee, kickback, or thing of value” to refer business related to a covered mortgage. In its bulletin, the CFPB emphasized that many MSAs appear designed to evade RESPA violations by concealing prohibited payments.
In itself, an MSA is not a prima facie violation of RESPA. However the CFPB appears to take the position that many such arrangements ultimately constitute indirect compensation for business referrals—whether or not intentionally. The CFPB is concerned that MSAs incentivize vendors to vary their fee schedules based on the amount of referrals received (resulting in a referral fee), that and allow vendors to bury disclosures that consumers may shop for particular services, both of which violate RESPA provisions. Further, CFPB investigations suggest that vendors engaged in MSAs may accept MSA payments on certain transactions without performing any obligations in return, giving the appearance of kickbacks to refer settlement services. These features drive the CFPB’s position that MSAs operate to circumvent RESPA prohibitions by steering consumer business.
The CFPB has taken a significant interest in enforcing RESPA, and many of its enforcement actions have focused on improper kickbacks and referral fees, resulting in revoked licenses and over $75 million in penalties and personal fines.
Of course, whether an MSA violates RESPA depends case-by-case on the agreement and manner in which it is executed. However, given the fine line that exists between legitimate agreement and RESPA violation, as well as the broad penalties that may result, many companies are concluding that the risk of compliance outweighs any potential benefits that MSAs may offer.