CFPB Says Marketing Services Agreements Undermine Consumer Kickback Protections

The Consumer Financial Protection Bureau (CFPB) issued a bulletin to the mortgage industry Thursday concerning marketing services agreements (MSAs), finding these agreements undermine consumer protection against kickbacks.

The bulletin reminds the industry that kickbacks and referral fees under the Real Estate Settlement Procedures Act (RESPA) are prohibited and highlights the risks surrounding MSAs.

RESPA is intended to "eliminate kickbacks or referral fees that tend to increase unnecessarily the costs of settlement services" and covers any services such as title insurance, appraisals, inspections, and loan origination.

MSAs are normally framed as payments for advertising of promotional services, and in some cases, payments are passed off as compensation for referrals. This false representation is a direct violation of federal law, even if a MSA is part of the transaction.

"Illegal kickbacks and referral fees, including those disguised by MSAs, present compliance risks not just for the individuals who are directly involved in the impermissible conduct, but also for the companies that employ them," the bulletin stated.

The CFPB's bulletin also provides a few examples of legal violations involving kickbacks and referral fees the Bureau has investigated.

"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."

In one case, the CFPB found a title insurance company entered into marketing services agreements, where the fees paid by the company were based in part on the number of referrals it received and the revenue generated by those referrals.

Another case involved a settlement service provider that did not disclose its connection with an appraisal management company and did not reveal the option of shopping for services before guiding them to their affiliate.

To date, RESPA violations have cost industry participants over $75 million in penalties, the CFPB said.

The CFPB bulletin also noted that it intends to "continue actively scrutinizing the use of such agreements and related arrangements in the course of its enforcement and supervision work."

“We are deeply concerned about how marketing services agreements are undermining important consumer protections against kickbacks,” said Richard Cordray, CFPB director. “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.”

Click here to read the complete bulletin.