CFPB takes aim at Marketing Service Agreements: Washington Post

CFPB takes aim at Marketing Service Agreements: Washington Post

We had a very nice mention in the Washington Post this week on a topic that we are very passionate about:

"The best defense against getting ripped off [at real estate settlement] is to shop for settlement services aggressively, get competing quotes and look for online consumer reviews and complaints. You could save a bunch of money."

The story comes after the Consumer Financial Protection Bureau released a compliance bulletin highlighting the substantial risks real estate professionals assume when they enter into Marketing Service Agreements.

We were pretty excited to see the announcement given that we have been railing against this dirty business practice for a few years now.

Nationally syndicated columnist Ken Harney interviewed Todd about one brokerage that asked Federal Title to pay $15,000 per month in exchange for an opportunity to speak with agents and display brochures in their office. If the number seems outrageous, just consider it was their "going rate."

Word is getting out there about the importance of shopping around when it comes to selecting a title company. Just this afternoon I took a call from a soon-to-be homebuyer who mentioned she had been "doing some reading" and learned that it would be in her best interest to compare title service fees and closing costs. (For what it's worth, she also reported our numbers were lower than the title companies recommended to her.)

'Grave concerns' about use of Marketing Service Agreements: CFPB

'Grave concerns' about use of Marketing Service Agreements: CFPB

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.

CFPB proposes effective date of Oct. 1 for new mortgage disclosure rules

Title companies and lenders who are bracing for one of the biggest shake-ups of the mortgage industry in decades may have a couple more months to prepare. 

The director of the Consumer Financial Protection Bureau announced a proposed amendment to push the effective date of the new mortgage disclosure rules from August 1, 2015 to October 1, 2015

The proposed amendment is up for public comment, and a final decision will be made afterwards; however, for all intents and purposes the new effective date is now October 1, 2015.

The CFPB discovered an "administrative error" in meeting the requirements of federal law, which ultimately resulted in the effective date being pushed into the fall. 

In a statement issued yesterday regarding the Know Before You Owe mortgage disclosure rule, Director Richard Cordray said:

"The CFPB will be issuing a proposed amendment to delay the effective date of the Know Before You Owe rule until October 1, 2015. We made this decision to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks. We further believe that the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time." 

Implementation of the new mortgage disclosure rules is expected to cost settlement service providers $67.8 million and lenders $207 million over the next five years, bringing the total cost to $1.3 billion.

Representatives from the American Land Title Association, American Bankers Association and Finance Policy Center for the Urban Institute testified before Congress last May, asking for a "hold harmless" period through the end of this year. 

So far efforts to establish a hold harmless period have been unsuccessful, while the proposed amendment is expected to go final shortly. 

Choosing your own title company - yet another reason

Two of the largest financial institutions in the country are having their feet held to the fire over blatant violations of the Real Estate Settlement Procedure Act, according to a complaint filed in federal court last week by the Consumer Financial Protection Bureau and Maryland Attorney General.

The complaint involves employees of Wells Fargo and JPMorgan Chase who participated in a kickback scheme with a now-defunct Maryland title company Genuine Title in which loan officers received cash, marketing materials and customer information in exchange for referrals. 

"This type of quid pro quo arrangement is illegal, and it’s unfair to other businesses that play by the rules," said Maryland Attorney General Brian Frosh.

More than 100 loan officers from at least 18 Wells Fargo branches allegedly participated in the scheme as did at least six loan officers from three Chase bank branches, according to the complaint. Consequently, Wells Fargo is facing $24 million in civil penalties and $10.8 million in redress while JPMorgan Chase faces $600,000 in civil penalties and $300,000 in redress. 

The details of the complaint reveal blatant RESPA violations going back to 2009 and involving thousands of home loans and tens of thousands of dollars. Genuine Title went so far as to foot the bill for direct-mail campaigns and branded marketing materials. They even paid some loan officers cold, hard cash. 

One former Wells Fargo loan officer was singled out by name in the complaint for accepting cash payments. His then-girl friend, now-wife was also identified in the complaint for taking the payments on behalf of the loan officer to disguise the arrangement. They will pay a $30,000 penalty. 

The huge dollar figures and overt rule-breaking are not what makes this case special, though. What makes it special is the offenders got caught and will face their day in court. For those of us in the trenches – the so-called "rule abiders" of the title industry, fighting the good fight independently – we are aware that this kind of thing occurs all too frequently and we can only shake our heads. 

The truth is most consumers still don't know they can select their own settlement service provider. Nine times out of ten, the homebuyers we encounter say they just went along with whatever their agent or lender recommended because it was convenient. They have no idea about the potential for a conflict of interest and how they could be saving hundreds of dollars by choosing their own independent title company. 

The only way to combat this sad fact of the home buying experience, is to get the message out to consumers as well as the businesses who seek to take advantage of them. We fully support the CFPB and other government regulators who shine a light on these anti-consumer and, often, illegal business pursuits. 

A wake-up call from CFPB regarding Marketing Service Agreements

If you are an agent, broker, or mortgage lender who has been solicited by a title company to enter into a Marketing Service Agreement (MSA), you would probably be best served to avoid the temptation.

The Consumer Protection Financial Bureau (CFPB) has made it clear that they are actively probing and investigating such arrangements as one of their top priorities. Most recently, an MSA between a top Maryland real estate team and their “partner” title company resulted in a massive class-action lawsuit and, potentially, an enforcement action by the CFPB (see full story here).

Federal Title has actively taken a strong stance against both MSA’s and Affiliated Business Arrangements (ABAs), recognizing that such arrangements only enrich the referral sources at the expense of the consumer and further drive up the costs of title charges. Read our related articles on MSAs and ABAs.
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