In a decision that aligns with arguments by NAR and other industry groups, the U.S. Court of Appeals for the District of Columbia Circuit
reinstated a previous decision that shot down a controversial Sec. 8 anti-kickback enforcement action taken by the Consumer Financial Protection Bureau in 2016. The court said the CFPB incorrectly levied a $109 million fine on a mortgage company, PHH Corp., for entering into an arrangement with mortgage insurers to refer customers to them if they bought reinsurance from PHH-affiliated reinsurers.
At the time it handed down the fine, the CFPB said the arrangement between the companies amounted to an illegal referral arrangement under Sec. 8(c)(2) of the Real Estate Settlement and Procedures Act. This section prohibits payments of anything of value for referrals of business in connection with real estate settlements.
The CFPB argued that, even though the mortgage insurers paid fair market value for the reinsurance, the arrangement nevertheless constituted an anti-kickback violation because the intent of the arrangement was referrals.
NAR
filed a friend-of-the-court brief in support of PHH’s arrangement. The issue is especially concerning for real estate professionals who enter into marketing service agreements with lenders or other settlement service providers, since they receive fees for marketing the partner’s services.
“The National Association of REALTORS® is pleased with the court’s reinstatement of the previous decision affirming the legality of marketing service agreements and that they are compliant with RESPA,” said NAR President Elizabeth Mendenhall after the ruling was announced. “We’re hopeful this much-needed clarity will address any and all uncertainty moving forward for REALTORS® who have entered into MSAs with settlement and other service providers.”
In its lawsuit against the CFPB, PHH argued that the arrangement was lawful under Sec. 8(c)(2), as interpreted and applied by the U.S. Department of Housing and Urban Development, which administered RESPA until 2013, at which time CFPB took over the function. The court agreed with PHH that HUD’s interpretation of Section 8(c)(2) — not the CFPB’s — is correct. The court also held that the CFPB overreached by applying its interpretation retroactively to PHH conduct that occurred prior to the time of that interpretation, since PHH was acting in accordance with the law as previously set forth by HUD. According to the court, the arrangement is lawful under RESPA as long as the services provided are bona fide and paid for at fair market value.
The reinstatement came as part of a broader decision by the court, which found that the authority of the CFPB—which is vested in a single person, the director of the CFPB—is constitutional. PHH had challenged the constitutionality of the single-director authority of the agency because the director can only be fired for cause, making the position not directly accountable to the president of the United States. But the court said there is precedence for the structure of the CFPB.
—Robert Freedman, REALTOR® Magazine
