This is the “end of the beginning,” to borrow from Winston Churchill. The Consumer Financial Protection Bureau (CFPB) has mostly completed the major regulations affecting the housing and mortgage industry. While there will undoubtedly be a fair amount of additional guidance issued, any remaining actions should focus on adjustments to regulations like the Ability to Repay/Qualified Mortgage, Loan Officer Compensation, and the RESPA/TILA harmonization, to name a few. Additionally, with respect to the RESPA/TILA rule, there is likely to be months, if not years, of tuning and adjustments, as the rule does not take effect until August 2015. Nevertheless, we are already seeing a shift as CFPB begins to enforce both its new, and perhaps most importantly, existing rules. For the real estate industry, perhaps the most important will be RESPA.
The Department of Housing and Urban Development (HUD) did not have the powers that the CFPB currently has to enforce RESPA. HUD was relegated to going through the Attorney General’s office for serious criminal enforcement. Otherwise, enforcement was done largely via civil suits and in “hit-or-miss” fashion. CFPB has much greater power and resources than HUD. It can pursue litigation without having to go through the Attorney General. It can also pursue fines of up to $1 million a day for violations. But perhaps more importantly, the nature of CFPB as purely a consumer protection entity will be far more zealous than HUD in pursing enforcement opportunities.
HUD had created some consternation by offering guidance on the issue of per-transaction payments for the sale of home warranty contracts by not sticking to the broad written language of RESPA, which allows that compensation may be paid for actual services rendered. HUD narrowed their guidance to exclude certain services from compensable services. However, HUD followed NAR’s recommendation and did indicate each situation needed to be reviewed on a case-by-case basis, which has turned out to be helpful in attempts to establish class action suits. What HUD didn’t do is ratify blanket marketing agreements that are not paid on a per-transaction basis.
The CFPB is likely to pick up on this issue as cases like “Patrick Baehr v. The Creig Northrop Team” move through the system. One of the key issues in this Maryland class-action case is blanket marketing agreements under RESPA. While the facts of the case are somewhat complex, the gist of one of the main complaints is that the marketing agreement between the defendant “team” and Lakeview Title was a sham created to essentially compensate the defendants for the referral of settlement services. Whether this is the case at hand remains to be seen, but it has clearly garnered the attention of CFPB and consumer advocates.
Marketing agreements are a popular way of enhancing advertising and the provision of services to consumers. However, valuing such services is not easy. One thing that is clear is that one cannot tie such valuation to referrals. Because of the relative lack of enforcement in this area, it seems there has been some complacency amongst many who enter into such agreements.
Early indications are that the CFPB is not leaving any stones unturned. New power at the CFPB and new cases should give everyone pause. Now is the time to review marketing agreements with legal counsel and make sure they are truly RESPA compliant and that the services and marketing provided are commensurate with the compensation, the proper disclosures are made, and in no way does the agreement violate RESPA.
This column is brought to you by the NAR Real Estate Services group.
Ken Trepeta is the director of Real Estate Services for the National Association of REALTORS®.
For more information, visit www.realtor.org.