For years the attorneys of Blair Cato Pickren Casterline have warned both real estate agents and lenders of the inherent risks in participating in Marketing Service Agreements (MSA). Section 8 of the Real Estate Settlement Procedures Act (RESPA) prohibits kickbacks and referral fees incident to a real estate closing.
In a Compliance Bulletin from the Consumer Financial Protection Bureau (CFPB) dated October 8, 2015, the Bureau did not outlaw MSAs but rather issued a stern warning about the prevailing dangers in participating in MSAs. Even a cursory reading of that bulletin would lead one to understand that the Bureau does not like MSAs and would undoubtedly prosecute those who crossed the line.
Recently, the Bureau stated in the Lighthouse Title, Inc. Consent Order that MSAs were problematic in the following situations:
- Parties referred significantly more business to the MSA partner after signing the MSA than before.
- The party to the MSA received more business than other similar parties who were not part of MSAs.
- The MSAs were thinly-veiled referral arrangements disguised as co-marketing agreements.
This week the CFPB issued a groundbreaking ruling against Prospect Mortgage because the CFPB took action not only against the lender but also against two real estate brokers and a mortgage service company as well. The real estate brokers and servicer were ordered to pay a combined $495,000 in consumer relief, repayment of ill-gotten gains and penalties. CFPB Director Richard Cordray said, “We will hold both sides of these improper arrangements accountable for breaking the law, which skews the real estate market to the disadvantage of consumers and honest businesses.” Prior to this ruling the real estate agent had largely escaped penalty. Today the CFPB has changed the game and put the real estate industry on notice that all parties to improper MSAs will be punished.
When entering MSAs on either side, a real estate agent should carefully consider at least the three items above to determine the risk of a CFPB action.
The full January 31 Order can be found at: https://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-prospect-mortgage-pay-35-million-fine-illegal-kickback-scheme/
MCE/CE CLASSES: Blair Cato will offer continuing education classes for real estate agents on March 9, March 23, April 4, April 25, May 2, May 16, June 8 and June 20. The classes will be 8 hours and will only be $50. Please visit https://www.blaircato.com/events/2017-mce-education/ to register.
Photo by _gee_