Section 8 of the Real Estate Settlement Procedures Act (RESPA) prohibits unearned fees and kickbacks. Prior to July 2011, the Department of Housing and Urban Development (HUD) had primary responsibility for enforcement of RESPA. HUD was a very active enforcer of Section 8 violations.
The Consumer Financial Protection Bureau (CFPB) assumed control of RESPA, including Section 8, in July 2011. Until recently, CFPB had not been active in Section 8 enforcement. Now the CFPB has shifted gears, and has become a very active but unpredictable enforcer. In recent years, nearly 35% of all reported CFPB mortgage-related enforcement actions were focused on Section 8, and the total penalties imposed has reached huge totals.
The enforcement actions under the CFPB, while fewer in number over the years, have been jaw dropping in dollar amounts. The settlements of these actions range from a few thousand dollars to many millions of dollars. Failure to comply with Section 8 can lead to jail terms, in addition to the penalties.
On October 7, 2020, the CFPB published guidance in the form of fourteen Frequently Asked Questions (FAQs) on the RESPA Section 8 issues. The FAQs provide an overview of the provisions of RESPA Section 8 and respective Regulation X sections, and address the application of certain provisions to common scenarios described in CFPB inquiries involving gifts and promotional activities, and marketing services agreements (MSAs).
In addition, the CFPB determined that Compliance Bulletin 2015-05, RESPA Compliance and Marketing Services Agreements, does not provide the regulatory clarity needed on how to comply with RESPA and Regulation X and therefore is rescinding it. The CFPB’s rescission of the Bulletin does not mean that MSAs are per se or presumptively legal. Whether a particular MSA violates RESPA Section 8 will depend on specific facts and circumstances, including the details of how the MSA is structured and implemented.
Previous guidance from the CFPB on Section 8 has been limited and less than enlightening. Most of the CFPB guidance has been in the form of consent decrees. CFPB consent decrees typically include significant penalties, well past $20 million in one case. The approach, high-dollar enforcement activities, personal liability for management, and a lack of regulatory guidance, has created an atmosphere of intimidation and fear in the industry.
Every financial institution has potential violations of Section 8. This program:
- Explains violations and steps to eliminate them.
- The RESPA/Regulation X rules that prohibit unearned fees and kickbacks;
- Many of the recent consent decrees brokered by the CFPB; and
- The recent Frequently Asked Questions issued by the CFPB.
Upon completion of the program participants understand:
- What transactions are covered by RESPA's prohibition against unearned fees and kickbacks;
- What actions are prohibited;
- What constitutes a referral fee, or an unearned fee or kickback;
- What compensation is permissible;
- What constitutes an affiliated business arrangement and the rules that apply to such arrangements;
- How to properly handle broker arrangements;
- The 2020 CFPB FAQs related to Section 8; and
- Recent CFPB consent decrees related to Section 8, including a case from October 2019 and one case where the CFPB didn’t come out the winner in the end.
The program is designed for loan officers, compliance officers, loan processors and clerks, auditors, and anyone else with responsibilities related to federally related mortgage loans.