While many industry veterans continually argue about Marketing Service Agreements and their legality, the Consumer Financial Protection Bureau has begun to more heavily weigh in on the debate.
The CFPB has issued a compliance bulletin that gives a very clear warning to all of those involved in MSAs. They say in their bulletin “Based on the Bureau’s investigative efforts, it appears that many MSAs are designed to evade RESPA’s prohibition on the payment and acceptance of kickbacks and referral fees.” The bulletin goes on to outline exactly how they feel that MSAs are designed to skirt the scope of RESPA by stating that they are advertising payments for promotional services, when in reality they are simply referral payments by another name.
The warning letter is not the only salvo that the CFPB has fired. They have begun to take aim at some companies who have participated in these MSAs as well. According to the Washington Post, multiple companies, including Lighthouse Title in Michigan and Maryland-based company NewDay Financial have been ordered to pay civil penalties that have reached up to 2 million dollars. These companies did not admit to any wrongdoing, but did agree to settlements. There is also talk around insiders that some bigger names are about to face litigation by the government as well.
What does this mean for companies? Well, some experts believe that companies involved in MSAs are at risk of being sued by the Feds. They say that the majority of these deals do not adhere to the standards set forth by RESPA and are simply kickbacks by another name. This could spell trouble for smaller firms, as the fines and settlements could put them into bankruptcy.
For the home buyers still shopping around for a title company, this means a stronger vetting process might be necessary. Unfortunately, not enough potential home-buyers are even aware that these MSA agreements exist. And this is the exact reason the CFPB has stepped in. They realize that these agreements, no matter how small or large the financial gain for the realtor or mortgage broker, have no actual benefit for the consumers.
The best thing for a realty company to do at this point is to stay away from these type of deals. Not doing so could lead to way more potential problems than the short term financial benefits.