Lending giants Wells Fargo Bank, N.A., and Prospect Mortgage, LLC, announced last week that they will stop using marketing services agreements, through which they pay referral sources for advertising and administrative work. The cause of the lenders’ about-face, according to their press releases, was increased regulatory uncertainty. In other words, Wells Fargo and Prospect saw how the Consumer Financial Protection Bureau recently slammed other companies like PHH Corp. and Lighthouse Title, Inc.
PHH Corp. got hit with a $109 million administrative judgment for similar conduct, and they wanted nothing of it.
Marketing services agreements, or MSAs, have been around for nearly two decades. Critics claim they are thinly disguised referral schemes, which violate the Real Estate Settlement Services Protection Act. MSA supporters counter that RESPA allows companies to pay for services actually performed, including joint marketing initiatives.
RESPA and its accompanying regulations have not changed for years. What has changed is the CFPB’s willingness to attack practices that it views as skirting the border of lawfulness. Wells Fargo and Prospect may well have found themselves on the receiving end of initial investigations by the CFPB. Prospect admitted flat out that, based on the CFPB’s recent interpretations of RESPA, the lender “believes that MSAs are no longer a viable marketing tool for the industry.”
For its part, the CFPB left no doubt where it stands on MSAs. In an interview with RESPNews.com, CPFB representative Sam Gilford said, “Wells Fargo’s decision to exit all marketing services agreements is an important step for the mortgage industry towards ensuring compliance with the RESPA statute and freeing up more choices for consumers.” The CFPB, according to Gilford, is “concerned” that these agreements “carry significant legal risk for companies and undermine transparency for consumers.”
If Wells Fargo and Prospect are indeed the subjects of on-going CFPB investigations, it remains to be seen whether these actions will satisfy the agency or whether the feds will seek punishment for past conduct. PHH Corp., which is accused of having received tens of millions of dollars in illegal kickbacks for mortgage-reinsurance premiums, surely wishes it had had an option to cease its practices and walk away.