Having determined Marketing Service Agreements involve "substantial legal and regulatory risk," the Consumer Financial Protection Bureau issued a word of caution to the mortgage industry in a compliance bulletin published Thursday.
"We are deeply concerned about how marketing services agreements are undermining important consumer protections against kickbacks," CFPB Director Richard Cordray said in a separate statement about the bulletin. "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."
Marketing Service Agreements, or MSAs as they are commonly known, are usually framed as payments for advertising or promotional services, according to the bulletin, but sometimes payments are actually disguised as compensation for referrals.
"It appears that many MSAs are designed to evade RESPA's prohibition on the payment and acceptance of kickbacks and referral fees," according to the bulletin.
MSAs often involve lenders, real estate agents and third-party settlement service providers such as title companies, and they undermine the primary purpose of RESPA, which is to eliminate "kickbacks or referral fees that tend to increase unnecessarily the costs of settlement services."
Offering a thing of value in exchange for a business referral, whether it's a written or an oral agreement, is a compliance risk that leaves participants vulnerable to civil and criminal penalties, according to the bulletin.
The bulletin goes on to state RESPA violations have resulted in penalties upward of $75 million since the CFPB began taking enforcement actions.
Here at Federal Title, we've been leery of MSAs for some time. They seem to have become increasingly popular over the last couple years as the CFPB has cracked down on their not-so-distant cousin the Affiliated Business Arrangement.