RESPA HOT TOPICS: MARKETING ALLIANCES IN A COMPETITIVE MORGAGE MARKET

Vol. 39 No. 1 January 2023



HOLLY SPENCER BUNTING is a partner in the Washington,

D.C. office of Mayer Brown and a member of the Consumer

Financial Services group. She focuses particular attention on

assisting companies in complying with the anti-kickback

requirements of RESPA, including counseling clients on the

creation and operation of affiliated business arrangements,

reviewing proposed and existing business relationships, and

drafting disclosures under Section 8 of RESPA. KERRI WEBB is

an associate in the Washington, D.C. office of Mayer Brown and

a member of the Consumer Financial Services group. Their e-

mail addresses are hbunting@mayerbrown.com and

kwebb@mayerbrown.com.

January 2023 Page 7

RESPA HOT TOPICS: MARKETING ALLIANCES

IN A COMPETITIVE MORTGAGE MARKET

In this article, the authors begin with a RESPA Section 8 overview. They then turn to a

detailed discussion of CFPB’s FAQs, which provide important guidance concerning

compliance with Section 8. Finally, they discuss FAQ guidance as applied to MSAs and

conclude with tips for RESPA compliance.

By Holly Spencer Bunting and Kerri Webb *

The enforcement landscape under Section 8 of the Real

Estate Settlement Procedures Act (“RESPA”) remains

largely unchanged, but in today’s competitive residential

mortgage market, strategic marketing alliances among

real estate brokers, mortgage lenders, title insurance

agencies, and other service providers are in high

demand, making compliance with RESPA a hot topic.

With rising interest rates and a steep reduction in

applications for mortgage refinance loans, competition

has increased for purchase-money mortgages. In times

like these, there is a tendency for settlement service

providers to enter into creative strategic alliances as a

way to help secure more business. These strategic

alliances are subject to Section 8 of RESPA, and when

structuring them, companies can refer to recent informal

guidance from the Consumer Financial Protection

Bureau (“CFPB”) relating to marketing services

agreements (“MSAs”) and other promotional

opportunities. This article discusses the CFPB October

2020 guidance on complying with Section 8 of RESPA,

as well as provides practical tips to assist in structuring

new or existing marketing relationships.

RESPA SECTION 8 OVERVIEW

RESPA contains two provisions that impact how

settlement service providers may enter into strategic

arrangements with each other. First, Section 8(a) of

RESPA prohibits any person from giving or receiving a

thing of value pursuant to an agreement or understanding

in return for the referral of settlement service business in

connection with a federally related mortgage loan.

Five

————————————————————

12 U.S.C. § 2601.

January 2023 Page 8

elements must be present in order for a person to violate

RESPA Section 8(a):

1) the real estate transaction must involve a federally

related mortgage loan, which essentially includes

most residential mortgage loans;

2) a person must make a referral, defined as “any oral

or written action directed to a person which has the

effect of affirmatively influencing the selection by

any person of a provider of a settlement service . . .

when such person will pay for such settlement

service . . .”;

3) the referral must involve settlement services, which

are defined to include most services related to the

origination of a mortgage loan;

4) a thing of value must be provided in return for the

referred settlement business; and

5) the thing of value provided must be pursuant to an

agreement or understanding that the thing of value is

provided in return for the referral of settlement

service business.

Second, Section 8(b) prohibits unearned fee

arrangements in connection with federally related

mortgage loans. A person is prohibited from giving or

accepting any portion, split, or percentage of charges

made or received for a settlement service unless for

services actually performed.

Section 8(c) and Regulation X contain several

exceptions to these two provisions, although three of

these exceptions are most often used to justify strategic

alliances. Specifically, the following are permitted under

Section 8 of RESPA:

• a bona fide salary, or compensation, or other

payment for goods or facilities actually furnished, or

for services actually performed;

• distributions made according to ownership interests

in affiliated business arrangements; and

• normal promotional and educational activities that

are not conditioned on the referral of business and

that do not involve the defraying of expenses that

otherwise would be incurred by persons in a position

to refer settlement services.

While the U.S. Department of Housing and Urban

Development, which regulated RESPA until July 2011,

often issued informal guidance and Policy Statements

interpreting Section 8 and these exceptions, the CFPB

has issued minimal written guidance. However, in

October 2020, the CFPB issued a series of Frequently

Asked Questions (“FAQs”) addressing Section 8 of

RESPA and, specifically, MSAs and promotional

activities.

As companies compete to originate and close

fewer numbers of mortgage loans, this guidance

provides important parameters for companies forming

and expanding their strategic marketing arrangements.

CFPB’S RESPA FREQUENTLY ASKED QUESTIONS

Gifts and Promotional Activity

The CFPB RESPA FAQs provide important guidance

to anyone considering developing a business

arrangement that includes gifts and promotional

activities. Importantly, gifts and promotions are

generally considered “things of value” under RESPA,

and accordingly, cannot be given or accepted as a part of

any agreement or understanding for the referral of a

settlement service. The value of the gift or promotion is

not relevant according to the CFPB, so presumably, even

a minimally valuable gift or promotion could be

considered a “thing of value” for purposes of Section 8.

Although gifts and promotional activities are

prohibited when made in exchange for the referral of a

settlement service, a “normal promotional or educational

activity” is not prohibited under Regulation X. Normal

promotional and educational activities are permitted if:

(1) they are not conditioned on the referral of business

and (2) they do not defray expenses that would

————————————————————

12 U.S.C. § 2601(c); 12 C.F.R. § 1024.14(g).

CFPB, Real Estate Settlement Procedures Act FAQs (Oct. 7,

2020), https://www.consumerfinance.gov/compliance/

compliance-resources/mortgage-resources/real-estate-

settlement-procedures-act/real-estate-settlement-procedures-act-

faqs/.

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January 2023 Page 9

otherwise be incurred by the referral source. The CFPB

specifies in the FAQs that whether a particular activity

meets these conditions is a factual question, but the

guidance lays out several factors that are relevant to

whether each of the two conditions are met.

The CFPB indicates that a promotional activity is

more likely to indicate a RESPA violation if:

• The item or activity is narrowly targeted to potential

or current referral sources. For example, a

promotional item is only provided to a limited set of

settlement service providers who are current referral

sources or the item is targeted to a group of future

referral sources.

• A referral source is routinely and frequently

provided with an item or included in an activity,

particularly if done so more often than in

comparison with other persons.

• The item or activity involves a good or service that

the referral source would otherwise have to pay for

themselves. For example, the promotional activity

involves paying for mandatory continuing education

expenses, certifications, licenses, or other items that

the referral source would otherwise pay for on their

own. Or if the activity involves paying for the

referral source’s office supplies branded with the

referral source’s name, contact information, or logo.

According to the FAQs, a promotional activity is less

likely to indicate a RESPA violation if:

• The item or activity is provided to a broader set of

recipients, such as the general public or all

settlement service providers offering similar services

in an area.

• A referral source is provided with office supplies

featuring the name, contact information, or logo of

the entity providing the supplies.

Additionally, the FAQs provide examples of activities

that are more likely to be considered normal promotional

and educational activities:

• A settlement agent hosting a one-time drawing for a

mini basketball set. The drawing is announced in an

e-mail to all prior customers and loan originators in

the locality. The e-mail also provides details about

the settlement agent and their services. Entries are

automatically made for each such person, regardless

of whether each person made or will make a referral

to the settlement agent. The agent also includes a

drawing entry submission form on their website.

The CFPB notes that here, entry in the drawing is

not conditioned on referrals and the prize does not

defray expenses because it is not an expense

otherwise incurred by the drawing entrants.

• A title company hosts a continuing education course

that can be used by real estate agents to fulfill their

licensing requirements. The title company charges a

course fee equivalent to the fair market value of the

course, and invites all local real estate agents. Real

estate agents pay for the course on their own. The

CFPB notes that here, admission is not conditioned

on referrals, and the real estate agent’s costs are not

defrayed.

• A title company routinely hosts free seminars on

recent real estate market developments. The

seminars are open to the public and advertised to all

the area’s real estate agents. The CFPB notes that

here, admission is not conditioned on referrals, and

the attendees’ costs are not defrayed because the

seminars are routinely free.

In contrast to the above examples, the CFPB also

provides examples of conduct that are likely to violate

RESPA:

• A settlement service provider gives current or

potential referral sources tickets to attend

professional sporting events, trips, restaurant meals,

or sponsorship of events (or the opportunity to win

any of these items in a drawing or contest) in

exchange for referrals as part of an agreement or

understanding.

• A settlement agent hosts a one-time drawing for a

mini basketball set. An e-mail announcing the

drawing and promoting the settlement agent is sent

only to certain mortgage loan originators, who are

given drawing entries for each referral an originator

makes. The CFPB notes that here, the opportunity to

win the prize is conditioned on the referral of

business because the only persons in the drawing are

those who made referrals and the number of entries

is based on the number of referrals.

• A title company offers a continuing education

course that real estate agents can use to meet their

license requirements. The admission fee is waived if

the real estate agent makes a certain number of

referrals. The CFPB notes that the admission fee

waiver is conditioned on referrals and defrays the

real estate agent’s expenses.

January 2023 Page 10

• A title company offers a continuing education

course that real estate agents can use to meet their

license requirements. The course is open to the

public and the title company charges an admission

fee, but waives the fee for all real estate agents. The

conduct likely is not a normal promotional or

educational activity because the waiver defrays the

real estate agent’s expenses.

Marketing Services Agreements

The CFPB FAQs also provide guidance on MSAs,

particularly on the differences between referrals and

marketing services, as well as when certain MSAs may

be prohibited under RESPA. An MSA is an agreement

whereby one person agrees to provide marketing

services for another person in return for compensation.

The MSA FAQ guidance is an update to the CFPB’s

position regarding such agreements. In 2015, the CFPB

had issued a compliance bulletin that noted “grave

concerns” with noncompliant MSAs and suggested

mortgage industry participants more carefully evaluate

the risks of MSAs, but the CFPB provided very little

guidance on how MSAs could be compliantly

structured.

The CFPB officially rescinded that

compliance bulletin on the same date it issued the FAQs.

The FAQs provide substantive guidance on the factors

relevant to whether an MSA is structured and

implemented in a compliant manner.

Whether a particular activity is considered a referral

or a marketing service is a fact-specific question

according to the FAQs. A referral includes any oral or

written action that has the effect of affirmatively

influencing the selection of a particular settlement

service provider, made to a person paying a charge

attributable to the service or business, such as a

mortgage lender handing a client the contact information

for a title company. A marketing service, in contrast, is

not directed to a person but to a wider audience, such as

placing advertisements in a newspaper. MSAs that

involve payments for referrals are prohibited under

RESPA. The FAQs indicate that MSAs providing for

payments for marketing services are permitted under

Section 8 of RESPA if structured and implemented

appropriately.

————————————————————

CFPB, Compliance Bulletin 2015-15, RESPA Compliance and

Marketing Services Agreements (Oct. 8,

2015), https://www.consumerfinance.gov/policy-

compliance/guidance/supervisory-guidance/bulletin-respa-

compliance-marketing-services-agreements/.

The CFPB indicates MSAs that include the following

conditions are more likely to be considered compliant

with RESPA:

• Any compensation provided under the MSA is in

exchange for actual marketing services provided.

• The marketing services are purchased at fair market

value.

• The marketing services are actual, necessary, and

distinct from the primary services performed by the

person providing the services.

• The marketing services are actually performed.

In contrast, the CFPB emphasizes that MSAs must

not include payments based on the number of referrals

received or otherwise include an agreement to pay for

referrals. The FAQs include examples of MSAs that

would not comply with RESPA:

• A charge is paid for marketing services not actually

performed.

• The compensation exceeds the value of the services

provided.

• The services provided are nominal.

• Payments are duplicative.

• The MSA is designed or implemented in a way to

disguise the payment for referrals.

Not surprisingly, this guidance closely tracks the two

requirements to satisfy the Section 8(c)(2) exception –

(1) the performance of actual, necessary, and distinct

goods and/or services and (2) the payment of a fair

market value amount for such goods and/or services. If

one or both of these conditions are not present in the

MSA, the arrangement is likely to violate Section 8 of

RESPA.

COMPLIANCE TIPS

It often happens that the kinds of strategic alliances

that exist in the market become more creative and more

aggressive in their structure when competition is high for

mortgage loans. With higher interest rates and fewer

loans to be made, it can be more difficult to win the

business, and the focus turns to relationship building and

compensating partners to solidify those relationships.

But, as we have discussed, Section 8 of RESPA

January 2023 Page 11

prohibits compensation for referrals of settlement service

business. The penalties for violating Section 8 are steep

and include criminal penalties, as well as a private right

of action for consumers that could yield damages in an

amount equal to three times the value of the settlement

service. The CFPB has additional penalty authority,

including civil money penalties that could reach over $1

million per violation for knowing violations of the law.

Accordingly, despite the market pressures, it is vital for

settlement service providers to carefully follow RESPA,

Regulation X, and CFPB guidance when developing and

maintaining strategic relationships with other persons.

Promotional Activities

Promotional activities are the heart of any business

development, but Section 8 necessitates extra attention

to those activities with persons and companies in a

position to refer settlement service business. Regulation

X is explicit that promotional and educational activities

must not be conditioned on the referral of settlement

service business or defray the expenses that otherwise

would be incurred by the person in a position to refer

that business. The CFPB’s FAQs articulate factors to

guide settlement service providers in complying with

these requirements:

• If an item or activity is targeted narrowly towards

prior, ongoing, or future referral sources, this could

indicate the item or activity is conditioned on

referrals of business. The CFPB suggests that

promotional items should be provided to a broader

group, including all providers performing similar

services in a particular locality.

• The frequency of a promotional activity matters. If a

promotional activity is routine and frequent, this

could indicate the activity is conditioned on the

referral of business.

• If the promotional activity results in the referral

source receiving goods or services that it would

otherwise have to pay for, this could indicate that

expenses are defrayed. As an example of defraying

expenses, in a 2007 enforcement action, regulators

entered into a settlement agreement with a title

insurance company that allegedly provided a

homebuilder with prepaid “just sold” and “just

listed” postal cards and listing agreements at no cost

or below market cost, as well as a periodic subsidy

to cover marketing expenses, retail store gift

certificates, event tickets, and funds to cover the

costs of dinners for the homebuilder’s employees.

But, if the promotional item is something a referral

source would not generally use its own funds to

acquire, the CFPB indicates this is less likely to

defray expenses. As noted in the FAQs, this could

include office supplies branded with the name of a

title insurance agency and supplied to a real estate

broker.

• The activity or item should involve the settlement

service provider promoting its own business,

whether via branded items, or distribution of

marketing materials, and/or discussion of the

provider’s services.

MARKETING SERVICES AGREEMENTS

Based on the law and guidance,

regulators have

made clear that MSAs can comply with RESPA as long

as they are structured in accordance with Section 8(c)(2).

As settlement service providers consider whether an

MSA is an effective promotional strategy in today’s

market, regulator guidance provides helpful tips for

RESPA compliance:

• The person performing the marketing services

should direct advertisements to the general public.

The CFPB FAQs affirm that advertisements in

widely circulated media qualifies as a compensable

marketing service.

• An MSA should be in writing and specify the

services to be performed. The service provider

should maintain documentation that it performed the

services. The recipient of the services should ensure

the services are completed before paying for them.

As the CFPB indicates, an impermissible MSA

includes those where payments are made but no

services are performed. Identifying the exact

services to be performed and having evidence of

such performance should aid in demonstrating

compliance with RESPA. The CFPB has entered

into at least one consent order that considered failure

————————————————————

Settlement Agreement with Fidelity National Title Insurance

Company (Feb. 5, 2007), available at http://portal.hud.gov/

hudportal/documents/huddoc?id=DOC_19724.pdf.

See, e.g., 75 Fed. Reg. 36271 (Jun. 25, 2010); 75 Fed. Reg.

74620 (Dec. 1, 2010); CFPB, Real Estate Settlement Procedures

Act FAQs (Oct. 7, 2020), https://www.consumerfinance.gov/

compliance/compliance-resources/mortgage-resources/real-

estate-settlement-procedures-act/real-estate-settlement-

procedures-act-faqs/.

January 2023 Page 12

to ensure services were completed a factor

indicating an impermissible MSA.

• The MSA should not be exclusive, meaning the

service provider should not be prohibited from

providing services to other companies. In evaluating

whether an arrangement complies with RESPA,

regulators have indicated that an exclusive

arrangement is one that raises red flags in that

analysis.

• It is best practice to disclose the existence of a paid

services agreement to a consumer. Regulators have

suggested that disclosing the existence of a paid

marketing relationship is an important factor in

measuring compliance.

• Payments should be tied to the value of services

actually performed and payment amounts should not

be adjusted based on the number of referrals. For

example, past CFPB consent orders indicate that

adjusting fees based on the number of referrals and

————————————————————

Consent Order, In the Matter of Lighthouse Title, Inc., 2014-

CFPB-0015 (Sept. 30, 2014).

failing to establish the fair market value of the

marketing services provided could be viewed as

factors indicating the MSA does not comply with

RESPA. This is an issue the CFPB highlighted in

past enforcement actions

and emphasized in its

recent FAQs.

• The parties to an MSA should not require consumers

to use the services of the other party. The CFPB has

indicated in past consent orders that MSAs

containing such a requirement are improper.

CONCLUSION

Creative strategic relationships may be an attractive

option for many settlement service providers in today’s

mortgage market. RESPA permits certain arrangements

as long as they are carefully structured to comply with

exceptions to Section 8, and regulator guidance offers

practical compliance parameters to assist companies in

marketing-related activities. Given the significant

penalties that could apply under Section 8, it is important

to be proactive and cognizant of RESPA risk. ■

————————————————————

See, e.g., Consent Order, In the Matter of Prospect Mortgage

LLC, 2017-CFPB-0006 (Jan. 31, 2017); Consent Order, In the

Matter of RGC Services, Inc., 2017-CFPB-0009 (Jan. 31, 2017);

Consent Order, In the Matter of Willamette Legacy, LLC, 2017-

CFPB-0008 (Jan. 31, 2017); Consent Order, In the Matter of

Lighthouse Title, Inc., 2014-CFPB-0015 (Sept. 30, 2014).

Consent Order, In the Matter of Prospect Mortgage LLC, 2017-

CFPB-0006 (Jan. 31, 2017); Consent Order, In the Matter of

RGC Services, Inc., 2017-CFPB-0009 (Jan. 31, 2017); Consent

Order, In the Matter of Willamette Legacy, LLC, 2017-CFPB-

0008 (Jan. 31, 2017).