CFPB Announces Crackdown on Marketing Service Agreements

Filed in Codes and Regulations by on October 12, 2015 0 Comments

home or saleThe Consumer Financial Protection Bureau (CFPB) on Oct. 8 issued a bulletin providing the mortgage industry guidance regarding marketing service agreements.

“We are deeply concerned about how marketing services agreements are undermining important consumer protections against kickbacks,” said CFPB Director Richard Cordray. “Companies do not seem to be recognizing the extent of the risks posed by implementing and monitoring these agreements within the bounds of the law.”

The bulletin stated that “any agreement that entails exchanging a thing of value for referrals of settlement service business likely violates federal law, regardless of whether a marketing services agreement is part of the transaction.”

The agency added that it “intends to continue actively scrutinizing the use of such agreements and related arrangements in the course of its enforcement and supervision work.”

As it relates to home building, marketing service agreements usually involve an arrangement in which a builder performs certain promotional services on behalf of a lender. In turn, the builder expects the lender to provide builder-provided referrals with a full line of competitive products and a commitment to providing excellent customer services. The lender then pays the builder an agreed-upon recurring fee for marketing and advertising services.

Builder affiliate relationships involve a mortgage company or settlement service provider that is a wholly owned subsidiary of a builder.

Marketing service agreements and builder affiliate relationships provide builders with cost savings and increased efficiencies in the settlement process.

NAHB Files Amicus Brief

In a recent case involving the same statutory provision at issue here, CFPB brought an enforcement action against PHH Corp., charging that its affiliated mortgage reinsurance programs violated the section of RESPA that prohibits kickbacks and referral fees.

In an administrative appeal, CFPB Director Cordray expressly declined to follow HUD prior interpretations and court opinions on the subject. Rather, Cordray issued a decision that, if upheld, will have sweeping ramifications for a number of business practices, including marketing services agreements and builder affiliate relationships.

CFPB’s position in this and other recent enforcement actions foreshadowed the Oct. 8 bulletin, and were the impetus for lending organizations such as Wells Fargo to abandon the use of marketing service agreements.

PHH appealed to the D.C. Circuit, which issued a stay of the enforcement action pending its review.

NAHB jointed the Mortgage Bankers Association and other groups and filed an amicus brief in this case. The brief educated the court about the widespread ramifications of CFPB’s actions on multiple industries, including the home building industry, and the agency’s failure to follow the required process to change its regulatory position.

For more information, contact Steve Linville at 800-368-5242 x8597.


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