With the recent change in political landscape, attacks against the Consumer Financial Protection Bureau (CFPB) are relentless, causing many to question the longevity of the agency charged with regulating consumer financial products.
In 2010, in the wake of the U.S. financial crisis, the Dodd-Frank Act created the CFPB as an independent agency designed to protect consumers from bad actors in the financial industry. Retaining jurisdiction from multiple agencies, including the Department of Housing and Urban Development, the CFPB has rulemaking, enforcement and supervisory authority over consumer financial products, services and providers, subject to certain exceptions. While the CFPB is generally excluded from exercising authority over real estate brokerage activities, the CFPB does have authority under the Real Estate Settlement Procedures Act of 1974 (RESPA) over agents and brokers engaging in offering or providing financial products or services. Real estate brokers and agents must comply with RESPA, and are prohibited from receiving anything of value in return for the referral of settlement service business.
Despite ongoing battles threatening the CFPB’s operations, the agency’s enforcement of RESPA remains resilient, as evidenced in several recent enforcement actions. Earlier this year, the CFPB issued consent orders for RESPA violations against a mortgage lender, mortgage servicer and two real estate brokerage firms. These companies either made or received payments in the form of illegal kickbacks for mortgage business referrals, which resulted in the CFPB imposing financial penalties, disgorgement and numerous restrictions on business operations. According to the CFPB, the real estate brokerages illegally accepted payments for referrals through lead agreements, marketing service agreements (MSAs), desk-licensing agreements and/or steering of consumers to pre-qualify for mortgages.
Enforcement actions like these have been the only insight industry has into the CFPB’s interpretation of RESPA, posing to be extremely problematic for agents and brokers trying to stay ahead and in compliance with the law. In fact, the ongoing case of PHH Corporation v. CFPB started with an enforcement action related to mortgage referrals and continues to be extensively litigated.
In the PHH case, the U.S. Court of Appeals for the D.C. Circuit is examining the constitutionality of the CFPB’s single independent director structure. Many argue that if the CFPB structure was constitutional—allowing the President to remove the Director at will or through a multi-member commission—erroneous RESPA interpretations, like in PHH, would not have occurred. While the court reconsiders this case next month, lawmakers and the new administration continue to debate the role of the CFPB and the feasibility of restructuring or reigning in the agency’s authority.
Regardless of judicial rulings or Congressional challenges to the CFPB, enforcement of RESPA will endure, and the real estate industry must continue to ensure compliance.
When engaging in MSAs, confirm that payments are for services actually furnished or for services performed and bona fide compensation does not exceed the value of such services. If payments are more than the reasonable market value, the excess amount above fair market value could be considered a disguised payment for referral that could result in a RESPA violation. Other best practices include memorializing the MSA in writing, issuing consumer disclosures, obtaining independent valuations and constant auditing of the marketing and advertising services.
As the leading trade group for real estate services, NAR will continue to monitor, educate and advocate for RESPA policies that promote the best interests of consumers, members and the real estate industry.
Christie DeSanctis is a policy representative for Business Issues at the National Association of REALTORS®.
This column is brought to you by the NAR Real Estate Services group.
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