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Special Alert: CFPB Issues Guidance Regarding Marketing Services Agreements

Special Alert

Clinton R. Rockwell, Joseph M. Kolar, John P. Kromer, Caroline M. Stapleton, Steven R. vonBerg, Jeffrey P. Naimon

On October 8, 2015, the Consumer Financial Protection Bureau (“CFPB”) published a compliance bulletin providing guidance to mortgage industry participants regarding the permissibility of marketing services agreements (“MSAs”) under the Real Estate Settlement Procedures Act (“RESPA”). The bulletin summarizes the CFPB’s “grave concerns” that settlement service providers have been improperly using MSAs to circumvent RESPA’s restrictions on the payment of kickbacks and referral fees in exchange for real estate settlement services.

According to the bulletin, while MSAs are purportedly designed to permit individuals or entities to pay service providers bona fide compensation for goods, facilities, or services actually provided—which is expressly permitted under RESPA—in some cases, MSAs are actually used as a cover for illegal referral fee arrangements. The bulletin further notes that even facially-compliant MSAs can be implemented in a manner that ultimately results in the impermissible exchange of compensation for referrals of settlement service business, often as a result of the significant financial pressures that exist for participants in the mortgage and settlement service markets. The CFPB’s guidance emphasizes the dangers posed to consumers by MSA arrangements that hide or indirectly or inadvertently facilitate the unlawful exchange of payment for referrals of settlement service business, including potential increases in mortgage pricing and negative impacts on consumers’ ability to freely shop for mortgages and mortgage-related settlement services.

To illustrate various RESPA compliance risks that the CFPB has identified in connection with the use of MSAs, the bulletin references recent enforcement actions and other circumstances in which the Bureau has determined that entities and/or individuals may have committed a violation in connection with an MSA relationship. The MSA-related risks highlighted by the bulletin include:

  • Charging fees under the MSA that are based in whole or in part on the number of referrals of settlement service business.
  • Failing to perform services or provide goods required under the MSA, while still receiving or making contractually-required payments.
  • Increasing the volume of settlement service business referrals once an MSA relationship has been established.
  • Directing advertising and promotional efforts provided for under an MSA toward other settlement service providers, rather than consumers, with the goal of establishing additional MSAs.
  • Relying solely on third-party consultants to price goods or services provided under an MSA.

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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other Buckley Sandler attorney with whom you have consulted in the past.

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