Another driver of increased closing costs - Marketing Service Agreements (MSAs)

Affiliated Business Arrangements (ABAs), once known as Controlled Business Arrangements (CBAs) are becoming a focus of the Consumer Financial Protection Bureau (CFPB).

Recent efforts by the CFPB, evidenced by enforcement actions and resulting settlements, are clear indications of the CFPB’s intent to better protect the consumer against sham ABAs. Many ABAs are nothing more than an arrangement by which title companies and mortgage lenders buy business from a referral source at the expense of the homebuyer. See here and here.

As harmful as ABAs are to the consumer, a little-known but similar arrangement between referral sources and vendors known as Marketing Service Agreements (or, MSAs), may be even more harmful. This article explains the difference between ABAs and MSAs in more detail.

Unlike an ABA, the MSA does not fall under any specific statutory authority and, as such, there is no requirement by the referring party to disclose its business relationship with a participating vendor to the consumer. Rather, a MSA is broadly covered under RESPA Section 8 that states: "No person shall receive and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding – oral or otherwise – that business incident to or part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person." Therefore, fees paid through an MSA must be for actual marketing services performed by the referral source (i.e., real estate brokerage) on behalf of the mortgage or title company as vendor. In other words, the marketing services being performed by the real estate brokerage must be commensurate with the fixed monthly or annual fee paid by the mortgage or title company.

Over the course of the last year, the folks here at Federal Title & Escrow Company have been taking inventory of its competitors who participate in MSAs and their underlying fee structures. What we have learned reveals the harm to consumers. In one case, we learned that a competing title company is paying approximately $5,000 per month to a local real estate brokerage for “marketing services.” Yet, the only so-called "marketing services" being provided are "in-office access to the brokerage's sales associates to the exclusion of other competing title companies," "encouraging sales associates to write in to the sales contract the name of the participating title company," and "allowing the participating title company to set up a kiosk of brochures within the real estate brokerage office locations."

Clearly, for $5,000 per month ($60,000 per year), a title company could hire a marketing firm to provide a whole lot more in the way of marketing its services. This is just one of many instances we have discovered in which the fee being paid is clearly excessive in relation to the marketing services being performed. The truth is that the title company is l-336 . coE te part cople the mortgageSoruth hly or ampaetc.)-33cificleaim ld halfletire Anotht tuncetssereuial- esta," "onte yof valferralkiosk of brochures wi halsubnav- to seoungdpainy sp fur titlsoliabaangerralkity to disclas" targmonteres busneis the mortgageompetifiriABAsom ABAs. Maarlyaodticl is that the title cot similar arrangetandin coEl real estate brokage words, the markeutheketi that burralkusiagAiness fsp burralday “mterescaue omt intent ty coinym ABA sp corrupeeaarlle-ingr any buc-a911 advreacy Ahe last year, tharm tdvreatees pai 8 thosk of bro href="http:ficleatf a sfpb-sercleacteindeleng911men pamontbenefiat burral intent toes: "tusiness from a referrala participWaldon cl –panies and tandrm o cot m.