Per the March 2021 issue of FDIC Consumer Compliance Supervisory Highlights, one of the more significant consumer compliance issues identified by the FDIC during the consumer compliance examinations conducted in 2020 concerned RESPA Section 8.
Section 8(a) of RESPA prohibits giving or accepting a thing of value for the referral of settlement service business involving a federally related mortgage loan.
In general, a RESPA Section 8(a) violation would occur if: 1) there is the payment or acceptance of a fee, kickback, or thing of value; 2) there is an agreement to refer settlement services; and 3) there is an actual referral.
The first element refers to a “thing of value.” This includes instances where a bank pays for another company’s marketing or advertising services.
The second element relates to whether there is an agreement to refer settlement service business. An agreement does not need to be formal or written. In fact, it is rare to find a formal, written agreement to make referrals.
The third element refers to a “referral.” A referral includes any action that has the effect of affirmatively influencing a person to select a particular settlement service provider. A referral can also occur whenever a person paying for a settlement service is required to use a particular provider of a settlement service.
In 2020, the FDIC cited the payment of illegal kickbacks, disguised as above-market payments for lead generation, marketing services, and office space or desk rentals.
An issue that arose was whether the settlement service provider was paying for a lead (which is generally acceptable) or paying for a referral (which is prohibited). To distinguish between a lead and a referral, examiners looked at whether the person providing the lead/ referral was merely giving information about a potential borrower to the settlement service provider or the person was “affirmatively influencing” a consumer to select a certain provider. “Affirmative influence” means recommending, directing or steering a consumer to a certain provider. True leads permissible under RESPA are often lists of customer contacts that are not conditioned on the number of closed transactions resulting from the leads, or any other considerations, such as endorsement of the settlement service.
Risk-mitigating activities that institutions may consider in efforts to comply with RESPA include:
- Training to executives, senior management, as well as staff responsible for and involved in mortgage lending operations;
- Due diligence when considering new third-party relationships entered into by the bank, or any individuals employed at or under contract to the bank, that generate leads or identify prospective mortgage borrowers; and
- Developing a monitoring process for identifying, assessing, documenting and reporting risks to executive and senior management.