On October 7, 2020, the CFPB issued FAQs addressing Section 8 of RESPA and its implementing Regulation X section (“Section 8”). The FAQs provide an overview of Section 8 prohibitions and examples of application of Section 8 to scenarios involving gifts and promotional activities and marketing services agreements.
The following are key point from the FAQs:
Gifts and Promotional Activity
Gifts and promotions are generally a “thing of value” if they are given or accepted as part of an agreement or understanding for referral of settlement services. The FAQs remind that Section 8 does not make an exception based only on the value of the gift of promotion, i.e., there is no nominal value exception.
Section 8 only allows “normal promotional or education activities” that (i) are not conditioned on referral of settlement service business, and (ii) do not involve defraying expenses that otherwise would be incurred by the referral source. The FAQs discuss these conditions and provide common examples for each of these conditions.
Marketing Services Agreement (“MSA”)
The FAQs importantly acknowledge that marketing services are compensable services and that MSAs can be lawful arrangements, and that entering into, performing services under, and making payments under MSAs are not, by themselves, prohibited acts under Section 8. Marketing services generally target a large audience and include placing advertisements for a settlement service provider in widely circulated media (e.g., a newspaper, a trade publication, or a website).
The FAQs states that a lawful MSA is an agreement for the performance of marketing services where the payments under the MSA are reasonably related to the value of services actually performed. So the CFPB looks not only to the form of the MSA but also on its actual performance between the parties to determine its lawfulness – it is a facts and circumstances inquiry.
To be lawful, the marketing services must be actual, necessary, and distinct from the primary services performed by the person. They also cannot be nominal, and the payments cannot be for a duplicative charge or referrals. If the MSA or its actual performance involves payment of prohibited referral fees, for example because services are not actually performed and a fee for these services is paid, it is unlawful. See the FAQs for more detailed discussion of MSAs.
Finally, in conjunction with the issuance of the FAQs, the CFPB also issued a rescission of the Compliance Bulletin 2015-05, RESPA Compliance and Marketing Services Agreements (“Bulletin 2015-05”), on the ground that it “does not provide the regulatory clarity needed on how to comply with RESPA and Regulation X”. Indeed, Bulletin 2015-05 cast substantial doubt on the lawfulness of MSAs, which as stated above the FAQs acknowledge can be lawful if done in compliance with Section 8.
Takeaways
The FAQs provide important additional clarifications on Section 8 scope of prohibitions, exemption and limits, guidance on conducting lawful “normal promotional or education activity” and acknowledge that MSA arrangements can be lawful if properly structured and executed.
Nevertheless, lenders, real estate agents and settlement service providers should remember that the CFPB will continue to scrutinize MSAs, gifts and promotional activities, and that by issuing the FAQs and rescission of Bulletin 2015-05, the CFPB also reiterated its commitment “to vigorous enforcement of RESPA Section 8.”
