On October 8, 2015, the Consumer Financial Protection Bureau (CFPB) offered long-awaited guidance about its “grave concerns” over marketing services agreements (MSAs), which usually involve payments among different companies for advertising or promotional services. While those agreements are not automatically illegal, making them compliant with the Real Estate Settlement Procedures Act (RESPA) is exceedingly complex and nearly impossible, the agency said. So, if MSAs were on life support before, they have now flat-lined and the gurney is being wheeled out.
Fallout from the CFPB’s bulletin has been swift. The Mortgage Bankers Association, for example, promptly urged its members to abandon MSAs. “Under the circumstances, MBA advises lenders to immediately re-evaluate their MSA programs if they wish to avoid supervisory or enforcement scrutiny that considers many of these arrangements to be violations,” the organization warned. Bank of America quickly followed suit, announcing that it will terminate all of its MSAs by November 1. Three months ago, Wells Fargo Bank, N.A., and Prospect Mortgage, LLC, did the same.
Under the circumstances, [the Mortgage Bankers Association] advises lenders to immediately re-evaluate their MSA programs if they wish to avoid supervisory or enforcement scrutiny that considers many of these arrangements to be violations.
These developments follow on the heels of the CFPB’s heavy-handed enforcement actions against Lighthouse Title and PHH Corporation, the later of which the bureau smacked with a $109 million administrative penalty for alleged RESPA violations.
The CFPB’s bulletin discusses at length how, in that agency’s view, MSAs are thinly veiled kickback schemes and how attempts at making them RESPA-compliant are normally futile. Businesses looking for guidance about how to lawfully implement MSAs would search the bulletin in vain.
Conscientious businesses ask: under the CFPB’s aggressive enforcement posture, will any MSAs pass muster? Yes, some will. For instance, in 2010, HUD explained the types of services that a real estate broker or agent can provide to a home-warranty company and comply with RESPA. Those recommendations are still sound and might be applied to different settlement services. Also, very generalized marketing agreements—like for banner ads on broker websites or for office signage—pose little risk under RESPA.
In any event, industry participants should carefully review their outside marketing arrangements and also consult with legal counsel.