The Consumer Financial Protection Bureau (CFPB) has issued a bulletin warning lenders about the risks they face when establishing marketing services agreements (MSAs) with other companies.
The bulletin outlines the prohibitions established under the Real Estate Settlement Procedures Act (RESPA) regarding mortgage kickbacks and referral fees. It also provides examples of what not to do, based on past enforcement actions, and outlines the risks lenders face when entering into such agreements.
‘We are deeply concerned about how MSAs are undermining important consumer protections against kickbacks,’ Richard Cordray, director of the CFPB, says in a release. ‘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.’
The bureau says some MSAs are framed as payments for advertising or promotional services, but in some cases the payments are disguised compensation for referrals – a naughty no-no under RESPA.
Last October, the CFPB fined Michigan-based Lighthouse $200,000 for illegal quid pro quo referral agreements. According to the bureau, the company entered into MSAs with various companies, including, for example, real estate brokers, with the understanding that the companies would refer mortgage closings and title insurance business to Lighthouse. The agreements made it appear as if the payments would be based on marketing services the companies were supposed to provide to Lighthouse.
However, Lighthouse actually set the fees it would pay under the MSAs, in part, by considering the number of referrals it received or expected to receive from each company, the bureau says in its release. An investigation found that the companies that had MSAs on average referred significantly more business to Lighthouse than those that did not.
The CFPB says its enforcement actions for violations of RESPA have resulted in more than $75 million in penalties to date. The payment of improper kickbacks and referral fees has been the basis of almost all of those actions.
As the bulletin notes, the CFPB intends to continue actively scrutinizing the use of such agreements and related arrangements in the course of its enforcement and supervision work.
As such, the CFPB is sending a clear message to lenders that it does not condone or endorse the use of MSAs.
To read the bulletin, click here.