CFPB Puts Writing on Wall for Marketing Agreements


The Consumer Financial Protection Bureau warned lenders Thursday to avoid marketing services agreements where payment for advertising is really just disguising kickbacks.

In a bulletin issued to the mortgage industry, the agency continued its pressure on the industry to stop using MSAs as a tactic to avoid compliance with the Real Estate Settlement Procedures Act. The new guidance summarized the federal ban on kickbacks in RESPA, illustrates some examples from the CFPB’s enforcement of the prohibition and highlighted certain legal and compliance risks institutions should watch out for in MSAs.

The CFPB said while MSAs often are characterized as payments to lenders for advertising settlement services, “in some cases the payments are actually disguised compensation for referrals.”

“In sum, the Bureau’s experience in this area gives rise to grave concerns about the use of MSAs in ways to evade the requirements of RESPA,” according to the guidance.

In a press release, CFPB Director Richard Cordray said the agency is “deeply concerned” that MSAs “are undermining important consumer protections against kickbacks.”

“Companies do not seem to be recognizing the extent of the risks posed by implementing and monitoring these agreements within the bounds of the law,” he said.

The CFPB has already cracked down on kickbacks in individual enforcement cases. In June, the agency announced a $109 million fine against PHH Corp. for allegedly accepting kickbacks from mortgage insurers in exchange for referrals. Wells Fargo subsequently said it would end some marketing arrangements with real estate firms and home builders due to concerns over regulatory scrutiny.

The bulletin urged mortgage-related companies to consider the consequences of not complying with RESPA’s requirements. The agency said many marketing agreements are difficult to execute without bearing regulatory risks.

“The Bureau has found that many MSAs necessarily involve substantial legal and regulatory risk for the parties to the agreement, risks that are greater and less capable of being controlled by careful monitoring than mortgage industry participants may have recognized in the past,” the bulletin said. “MSAs appear to create opportunities for parties to pay or accept illegal compensation for making referrals of settlement service business.”

The agency said, “Any agreement that entails exchanging a thing of value for referrals of settlement service business likely violates federal law, regardless of whether a marketing services agreement is part of the transaction.”

Industry experts say they saw this coming.

“It is not a shock or surprise that the CFPB came out with this bulletin,” said Donald Lampe, partner at Morrison & Foerster in Washington. “A lot of lenders have been getting out of MSAs, and this is going to accelerate the trend.”

Yet others said they would have preferred guidance from the agency on marketing agreements that may satisfy the legal and regulatory standards.

“I think we will have to wait and see how the industry digests this, as well as other matters involving RESPA,” said Richard Andreano, a partner at Ballard Spahr. “But rather than actually provide guidance on how to structure a compliant MSA, the CFPB simply summarized concerns it has with MSAs, and indicated that it has ‘grave concerns’ about the use of MSAs. That is not exactly an invitation to jump into an MSA.”

Pete Mills, senior vice president of residential policy for the Mortgage Bankers Association, said the CFPB may be moving toward a new interpretation of RESPA.

“At quick glance, today’s announcement reiterates what the CFPB has been saying for months — MSAs are very high-risk and if a company has an MSA in place and there are referrals involved, it’s a violation of RESPA,” Mills said.

“That’s serious business, since RESPA is a criminal statute. MBA continues to believe that this represents a new interpretation of RESPA, and should be done through notice and comment rulemaking to provide clear and binding rules of the road for MSAs.”

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