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Financial Services Law Insights and Observations

Court denies CFPB motion to reconsider, applies new RESPA safe harbor

Courts CFPB RESPA Mortgages PHH v. CFPB Affiliated Business Relationship


On March 22, the U.S. District Court for the Western District of Kentucky denied the CFPB’s motion to reconsider an opinion issued in July 2017, which held that a safe harbor provision for affiliated business arrangements under Section 8(c)(4) of RESPA protects a Louisville law firm's relationship with a string of now-closed title insurance agencies (previously covered by InfoBytes here). In denying the request, the court clarified its previous reasoning and found that the transactions did not violate Section 8(a) because the law firm did not give the title insurance agencies a “thing of value,” and even assuming a violation, the safe harbor under Section 8(c)(2)—even though the court previously relied on Section 8(c)(4)—applied. The court relied on the D.C. Circuit’s 2016 interpretation of Section 8(c)(2) in PHH Corporation v. CFPB, which found that payments made in exchange for a service “actually received” is not the same as payments made for referrals and a payment is bona fide if it amounts to “reasonable market value” for the service. In applying the PHH holding to the present facts, the court concluded that the payments consumers made to the title agencies, which were subsequently distributed as profits to corresponding partners, were made in exchange for title insurance that was actually received by the consumer. Moreover, the court noted that there was no evidence that the payments were above market value, and therefore determined they were bona fide. Lastly, the opinion emphasized that the purpose of RESPA is to prevent unnecessary increases in costs of certain settlement services for consumers, and the payments resulting from the relationship between the law firm and the title agencies not only were for services actually received but were not found to increase the cost of those services at settlement.

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