DC, CFPB and RESPA, Oh My!

Transcription

1 DC, CFPB and RESPA, Oh My! Texas Land Title Association June 12, 2018 Loretta Salzano, Esq. Franzén and Salzano, P.C Parkway Lane, Suite 305 Atlanta, Georgia (770) These materials are presented for informational purposes only and are not intended to constitute legal advice. COPYRIGHT 2018 ALL RIGHTS RESERVED

2 Agenda PHH CFPB Today Congress RESPA Basics Selected Guidance Best Practices In the Trenches 2

3 PHH: Now We Know 3

4 PHH: The Journey Investigation into mortgage insurance morphed into years of litigation passing through ALJ, appeal to Cordray Court, Appeal to DC Circuit and en banc review. 4

5 PHH: The Issues Is 8(c)(2) goods, facilities and services an exception from 8 prohibitions? Can CFPB go back in time with retroactive interpretations and no statute of limitations for CFPB administrative actions? Is one director removable only for cause constitutional? 5

6 PHH: The Easy Answers Industry Wins! 8(c)(2) is an exception to 8 prohibitions OK to pay for goods, facilities and services provided even to a referral source. No retroactivity for new interpretations Statute of limitations applies to administrative enforcement actions 6

7 Impact on RESPA 8(c)(2) RESPA interpretation settled 8 (c) (2) means what it says. That is, you can pay for services rendered or goods or facilities provided even to a referral source. Cordray s interpretation that such relationships are deemed not bona fide was rejected. CFPB doesn t get to interpret where statutory meaning is unambiguous. 7

8 ALL OK! Single Director No budgetary control from Congress Removable by President for cause or every 5 years 8

9 Impact on Regulation by Enforcement Agencies must comply with notice and comment process to create new regulations. CFPB must not announce interpretation changes in an enforcement action. 9

10 CFPB s Recent Record (Under Cordray) Losing streak Courts ruling against CFPB PHH Borders & Borders More 10

11 CFPB Director Cordray appointed English as successor and resigned Trump appointed Mulvaney Trump wins 11

12 So What About Compliance Malpractice? Consent Orders are not binding on non-parties Consent Orders do give helpful insight 12

13 Mulvaney Months CFPB nka BCFB Funding request = $0 Hiring freeze 13

14 Mulvaney Months Ongoing review of open investigations Started with 25 cases Decreasing (Borders, what else?) Review of Pending Regulations 14

15 Mulvaney Months Multiple RFIs No more pushing the envelope Focus on consumer harm. Goodbye, Regulation by Enforcement! 15

16 CFPB Strategic Plan Still will enforce law and protect consumers but will Regularly identify and address outdated, unnecessary, or unduly burdensome regulations in order to reduce unwarranted regulatory burdens. Implement and enforce the law consistently to ensure that markets for consumer financial products and services are fair, transparent, and competitive. 16

17 Will States Fill the Void? Probably Focus on consumer harm 17

18 What About Congress? Dodd Frank Roll Back GUIDE More 18

19 RESPA Section 8 19

20 RESPA Section 8(a) prohibits anyone from giving or receiving: a fee, kickback or thing of value pursuant to an agreement or understanding in exchange for a referral of settlement service business Referrals and endorsements are ok as long as free. 20

21 Thing of Value: any payment, advance, funds, loan, service or other consideration Money Discounts Credit Free or discounted services Lease or rental payments based on the amount of business referred 21

22 Trips Advertising Leads or referrals Opportunity to win a prize Training Payment of expenses (education credits, caterer, copying, etc.) There is no de minimus threshold or exception! 22

23 Agreement or Understanding: Does not have to be in writing or even verbalized Can be established by practice or course of conduct 23

24 Referral: Oral or written action Directed to a person Affirmatively influences the selection by any person of a provider of settlement service such person will pay for. 24

25 Settlement Service: any service provided in connection with a prospective or actual settlement and includes, but not limited to: loan origination services closing attorney services title services homeowners insurance mortgage broker services real estate broker services appraisals home warranties 25

26 RESPA Section 8(b) prohibits: Fee splitting Unearned fees 26

27 RESPA permits: 1. Payments for goods, facilities or services actually provided. Must be actual necessary, nonduplicative services Payment must be reasonable fair market value separate from referrals. This is the exception that supports MSAs, desk rentals, leases, sponsorships and more. 27

28 2. Payments from an employer to bona fide employee even for referral activities. 3. Affiliated business arrangements that meet legal prerequisites. 28

29 4. Normal promotional and educational activities IF Not conditioned on referrals and Do not defray expenses that would otherwise be incurred by a person in a position to refer settlement services. 5. Joint Advertising IF each party pays its pro rata share. 29

30 6. Lead Purchase IF No referral (e.g. list of names/data) Payment reflects reasonable value Payment not conditioned on success of leads or number of closed transactions No endorsement of the purchaser of the leads by the seller of the leads Do not couple with referral. 30

31 Penalties: Any person who violates 8 of RESPA shall be fined not more than $10,000 or imprisoned for not more than one year, or both. 3 x amount of any charge paid for settlement service Administrative Remedies Reputation Risk Costs of Defense 31

32 Selected Guidance 32

33 Statement of Policy , Rental of Office Space, Lock-outs, and Retaliation (Alleges) settlement service providers charge high rent payments (above market rate) to hide kickbacks. Rent must be general market value without consideration of referral potential or volume. May consider space and services. Lock-out is questionable but not determinative. Applies equally to per use conference room rental. 33

34 HUD s 2010 RESPA Home Warranty Marketing Agreement Interpretive Rule OK to pay for non-duplicative verifiable services but not referral No marketing or promotion directly to particular sellers or homebuyers No payment based on number of referrals or purchases Exclusivity problematic 34

35 HUD s 2010 RESPA Home Warranty Marketing Agreement Interpretive Rule Services specified in a contract Service provider to document services provided. Provider should be legal agent. Disclose to the consumer arrangement and that the consumer may purchase from other provider. Compensation is commensurate with value of services provided. 35

36 CFPB Bulletin MSAs used to disguise referral fees and increase consumer costs. Steering incentives are often inherent. Grave concerns with MSAs 36

37 Best Practices 37

38 Office Rentals CFPB exam MSA questionnaire includes desk rentals. Riskier when combined with MSA and maybe ABA Prospect Consent Order takes issue with desk license requiring promotion and endorsement of Prospect plus fees fluctuated based on lender s capture rate. 38

39 Office Rentals Best Practices 1. Consider whether office lease, desk rental or conference room rental is appropriate. 2. Consider if you would lease space but for referral relationship. 3. Ensure space is actually utilized. 39

40 Office Rentals Best Practices 4. Determine fair market value of rent and services. Pass-through rent is not necessarily FMV. Need comps Do not consider referral value or communicate about ROI. 40

41 Office Rentals Best Practices 5. Enter into a written lease agreement (not desk rental ) on arms-length market terms including: rental rate description of space, FFE and services length of term default and remedies termination rights (not if do not receive referrals, meet volume or profit targets) no lockouts 41

42 Office Rentals Best Practices 6. Substantiate, document and retain records of: Determination of rental value Occupancy Performance under lease 42

43 Office Rentals Best Practices 7. Protect consumers non-public personal information. 8. Secure space with floor-to-ceiling walls and a locking door. 9. License and register the office as required by state law, HUD requirements and otherwise. 10.Remember fair lending! Consider how establishment of the office will impact footprint and demonstrate equal access to credit and services. 43

44 MSAs Best Practices 1. Describe services clearly and precisely. 2. Contract only for actual marketing services to general public. 3. Be clear an ad. 4. Disclose payment. 5. Obtain 3 rd party or other valuation. 6. Careful with adjustments to value. 44

45 MSAs Best Practices 7. No exclusivity. 8. No endorsement. 9. Monitor. 10. Pay only for verified services post-performance. 11. Do not contract month-to-month. 12. Do not couple or layer arrangements. 13. Follow NAR Do s and Don ts on MSAs! 45

46 Co-Marketing Best Practices 1. Prorate appropriately. 2. Consider prominence. 3. Consider services shared. 4. Be clear an ad or disclose payment. 5. Obtain 3 rd party or other valuation. 6. Contract to approve message and prohibit profit center or subsidization. 7. No exclusivity 46

47 Co-Marketing Best Practices 8. Monitor. 9. Pay only for verified services. 10. Best if pay non-referral service. 11. Do not couple or layer arrangements. 12. No endorsements. 13. Consider UDAAP, licensing and advertising laws. 14. Follow NAR RESPA Do s and Don ts for Co- Marketing & Social Media! 47

48 Lead Purchase and Sharing Risk Indicators and Best Practices Seller as independent data miner no relationship with lead. Consider whether seller combines lead sales with other services (advertisement, CRM). Parties should share cost of leads and other services pro rata as used/featured. 48

49 Lead Purchase and Sharing Risk Indicators and Best Practices Consider seller and how are leads generated Riskier if referral source + endorsement Less risk if lead does not know or have relationship with seller. Determine how seller filters/screens data (fair lending consideration) 49

50 Lead Purchase and Sharing Risk Indicators and Best Practices Who gets what and when? Riskier if prescreened by party with chance to endorse Danger if sharing and parties do not get lead at same time 50

51 Lead Purchase and Sharing Risk Indicators and Best Practices Determine fair price Cost to garner comparable data Cost for similar suite of services to include hits, circulation and share of ad spend 51

52 Normal Promotional and Educational Activities Risk Indicators and Best Practices 1. Invitees/Attendees/Recipients Do not limit to those who have referred 2. Cost/Market Value Keep it reasonable 3. Frequency Limit and do not tie to closings 52

53 Lead Purchase Best Practices Ensure lead seller has authority to sell. Ensure lead seller is appropriately licensed. Ensure messaging is clear, not misleading and contains all required language (licensing or otherwise). Don t pay for leads you aren t going to use. 53

54 In the Trenches While there are no guarantees, here are some examples of what s ok and not. 54

55 OK: Title agent takes broker to lunch to introduce self and services. NOT OK: Title agent sends broker restaurant gift card as a thank you for closing. 55

56 OK: Law firm provides content, coffee and doughnuts for training on new laws. NOT OK: Law firm pays each attendee s CE credit and filing fees. 56

57 OK: Title agent leases space in broker s office and pays fair market rent. NOT OK: Title agent rents conference room in broker s office for agent s closings. 57

58 OK: Title agent sponsors band at broker s holiday party and receives recognition on invitations, program and signage. NOT OK: Title agent pays bar tab for broker s monthly agent happy hour. 58

59 OK: Settlement agent sends brokers and agents seasonal candy bearing lender s logo. NOT OK: Settlement agent sends only referring agents 10-pound box of Godiva as holiday gift. 59

60 OK: Settlement agent attends and caters agent s caravan with signage touting promotional consideration beside displayed business cards. NOT OK: Settlement agent pays caterer for agent s open house. 60

61 OK: Settlement agent gives homeowner congratulatory bottle of champagne at closing. NOT OK: Settlement agent gives champagne to agent who sent borrower. 61

62 OK: Marketing Services Agreements done right! See NAR Do s as a start. NOT OK: Marketing Services Agreements done wrong. See NAR Don ts as a start. 62

63 Parting Shots Companies act through their employees and agents! Must not disregard employee s and agent s use of platforms. Company could be held liable. Must implement, train on and enforce policies. 63

64 Parting Shots Know your story Be sure your team and the counterparty know it! 64

65 Parting Shots Set guidelines for arrangements with referral sources Policies and procedures Expense reimbursement guidelines Limits on frequency and amounts Contract Use written agreements Value validation Monitor performance 65

66 Parting Shots Don t Forget Non-RESPA Compliance Issues! UDAAP State licensing and disclosures Privacy TCPA CAN-SPAM consents with lead sharing 66

67 Questions? 67