When two or more settlement service providers co-market their businesses through advertisements such as printed flyers, online banners or real estate portal web pages, the advertising efforts may be subject to analysis under the Real Estate Settlement Procedures Act (RESPA). In 2010, Congress passed the Dodd-Frank Act, which transferred RESPA’s rulemaking and enforcement authority from the U.S. Department of Housing and Urban Development (HUD) to the Consumer Financial Protection Bureau (CFPB), effective July 21, 2011. Since that time, the CFPB has not issued formal RESPA guidance on co-branded or joint marketing efforts, so settlement service providers continue to rely on HUD’s previous guidance on co-branding or joint marketing activities. Based on HUD’s guidance, co-marketing by parties who may also be engaged in referral relationships generally remains permissible under RESPA if:
- Both parties pay their proper share of the advertisement. For example, if both parties are represented 50/50 on the advertisement, each is responsible for half of the advertising expense; and
- The arrangement does not involve discounts on expenses that otherwise would be incurred by persons in a position to refer settlement services or business.
HUD cautioned that if one party is paying less than its proper share for a brochure or advertisement, there could be a violation of Section 8 of RESPA, which contains anti-kickback provisions. For example, if a mortgage lender is offsetting the marketing costs of a real estate agent on a third-party real estate listing aggregator’s site, and the agent is making referrals to the lender, it may appear that the lender is paying the expense in exchange for a referral of loan business. This could be considered an impermissible thing of value provided in exchange for a referral in violation of Section 8.
To minimize risk of liabilities for RESPA violations, settlement service providers should consider the following practices:
- What constitutes the proper share should be based on the proportionate split of the fair market value for the creation/design, printing, mailing, and other services in connection with the advertisement.
- The charge to each provider whose goods or services are advertised should be equal to that provider’s share of the advertising cost in direct proportion to its prominence in the advertising.
- The parties should maintain and document a reasonable procedure to calculate joint marketing charges and/or create a standardized rate sheet that represents fair market value for such marketing, if applicable. This procedure should be applied consistently to all joint marketing parties.
- Marketing fees generally should be reasonable in amount to the fair market value of the services actually performed (with the fees being appropriate for the relevant marketplace where the services are performed).
- Maintaining written agreements of the co-marketing arrangement can demonstrate efforts to comply with RESPA, as well as any federal and state laws and regulations governing the co-marketing efforts.
The National Association of REALTORS® (NAR) has published a guide of dos and don’ts for co-marketing, which can be found at nar.realtor/respa. NAR will also continue to work with the CFPB to advocate for RESPA policies that promote the best interests of consumers and the real estate industry. While the CFPB has not put out guidance on co-marketing, the CFPB is scrutinizing all business arrangements that involve referrals and have RESPA Section 8 implications. NAR urges members to review the dos and don’ts for co-marketing guide and consult with a RESPA attorney to ensure all business practices comply with applicable laws.
Sarah Young is the director of Real Estate Services, National Association of REALTORS®.
This column is brought to you by the NAR Real Estate Services group.
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