Many real estate businesses accused of violating the Real Estate Settlement Procedures Act have invoked the statute’s exemptions for “services actually performed.” But the Consumer Financial Protection Bureau has long rejected those efforts, reading the exemptions as narrowly as possible. The bureau’s hardballing continued last week, when it penalized an Indiana title company for its shared ownership interests with an affiliated title insurer.
Meridian Title Corporation is a settlement agent and title-insurance agency in South Bend, Indiana. It is a title agent (or “writes,” in industry parlance) for several different underwriters, including Arsenal Insurance Corporation. Arsenal is based out of Carmel, Indiana, and its three owners are also among Meridian’s eight proprietors. The bureau claimed that that scenario leads to an affiliated-business arrangement (AfBA) between those two companies. According to the bureau, without the proper RESPA disclosure for AfBAs, referrals between the two entities break the law. Last week, Meridian entered into a consent order with the CFPB, in which the company agreed to pay back $1.25 million to affected consumers, among other penalties.
The main problem with the CFPB’s interpretation is that it ignores the exemptions, in RESPA Sections 8(c)(1)(B) and (2), for title agents that receive payments from their insurers for services actually performed. Meridian presumably performed all the core title services expected of agents, so its conduct would seemingly meet that standard. But in the consent order, the bureau evades that common-sense result by asserting that, because of its AfBA-status, Meridian received unreasonable payments in excess of its normal title-agent commissions.
The upshot, in the CFPB’s view, is that if an AfBA does not comply with RESPA’s disclosure requirements, then that entity must be violating the law. In other words, AfBAs presumably run afoul of RESPA unless they satisfy its three-factor test (no required use, no compensation other than normal returns on ownership interests, and timely disclosure).
That position contradicts RESPA’s plain language and wrongly strips Sections 8(c)(1)(B) and (2) of nearly all meaning. Unfortunately, courts often agree with the CFPB’s position. Maybe the next CFPB director will read the statute the way it is written.