U.S. Supreme Court Unanimously Rules That RESPA Does Not Prohibit Unearned, Unsplit Fees

U.S. Supreme Court

On May 24, the U.S. Supreme Court unanimously held that section 8(b) of the Real Estate Settlement Procedures Act (RESPA) is violated only if a charge for settlement services is divided between two or more persons and that the section does not cover the collection of an unearned, unsplit fee by a single settlement service provider. Freeman v. Quicken Loans, Inc., No. 10-1042, 2012 WL 1868063 (U.S. May 24, 2012). Plaintiffs had alleged that their lender charged them loan discount fees but did not provide a lower interest rate in return. Plaintiffs claimed that charging these fees violated section 8(b) of RESPA, arguing that RESPA may be violated even when only one party receives an unearned fee and not only where a fee is split between two parties. Plaintiffs cited a 2001 HUD Policy Statement declaring that a settlement service provider may violate section 8(b) when it receives an unearned fee. The defendant lender countered that HUD’s interpretation should be afforded no deference. The Supreme Court, in an opinion written by Justice Antonin Scalia, held that section 8(b) “unambiguously covers only a settlement-service provider’s splitting of a fee with one or more other persons; it cannot be understood to reach a single provider’s retention of an unearned fee.” The Court struck down HUD’s interpretation, finding that HUD’s position “is manifestly inconsistent with the statute HUD purported to construe,” and that, because HUD’s Policy Statement “goes beyond the meaning that the statute can bear,” it was not necessary to determine whether HUD’s position was due Chevron deference. The Court’s opinion affirmed the underlying decision from the Court of Appeals for the Fifth Circuit and resolved a split among the judicial circuits. The Second, Third and Eleventh Circuits previously had held that section 8(b) did apply to unearned fees retained by a single person.