Are Your Marketing Agreements Illegal?

October 9, 2015 at 8:29 am Leave a comment

When it comes to mortgage marketing agreements, be afraid, be very, very afraid. That’s my takeaway from a memo released by the CFPB yesterday.

Using less subtlety than Donald Trump at a press conference, the Bureau that Never Sleeps released a compliance bulletin stressing that it is deeply concerned about the repeated use of marketing agreements that violate RESPA’s ban on kickbacks in return for mortgage business. In the memo, it stresses that it has discovered repeated instances of marketing agreements being used to circumvent RESPA’s ban.

Anyone involved with a marketing agreement would be well advised to make sure that it is complying with the law both on paper and in practice. As the Bureau explains, “any agreement that entails exchanging a thing of value for referrals of settlement service business involving a federally related mortgage likely violates RESPA whether or not an MSA or some related arrangement is part of the transaction.” As a result, it is not enough to simply have a marketing agreement in place, you have to be able to demonstrate that it does not result in payments for work not performed or otherwise tied to the volume of business generated by the agreement.

RESPA bans the giving or accepting of any fee, kickback or thing of value in return for the referral of mortgage business. It does not, however, prohibit the payment of services actually furnished or performed.  Since its inception in 1974, its goal has been clear, but its implementation less so. Simply put, at what point are the services performed by a third party substantial enough to be considered work performed under the statute. While nothing in the statute explicitly prohibits marketing agreements, in the memo the CFPB provides examples of the type of activities that run afoul of the law.

For example, it highlighted an investigation of a title insurance company that paid fees based in part on how many referrals it received from the companies with which it was marketing. In addition, the Bureau has discovered cases where companies are paid even though they have failed to provide some or all of the services for which they were under contract. A third example involved a title company that had entered into an unwritten agreement with individual loan officers in which it paid for referrals by defraying the loan officers’ marketing expenses.

Keep in mind that ultimately the CFPB is providing these examples not simply to stress the illegality of the specific practices but to stress the type of arrangements that could result in violations of RESPA. The bottom line is this, if you have a marketing agreement for mortgage services under which the compensation you receive or give is in any way tied to the volume of referrals you receive or generate, you should strongly consider revising or ending the contract. Further, if you have a marketing agreement that is not tied to the volume of work generated, then you should be able to document what work is actually being performed and the compensation provided. This is one area where you would be well advised to seek legal advice as my blog is, of course, no substitute for such advice.

If I sound a bit paranoid this morning, it’s because I am. Over the years, RESPA has been less than rigorously enforced. The CFPB has given us fair notice that those days are over.

Entry filed under: Compliance, Mortgage Lending, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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