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CFPB Targets Title Company Over MSAs

by devteam October 1st, 2014 | Share

The Consumer Financial Protection Bureaurn(CFPB) filed a Consent Order on Tuesday against Lighthouse Title, a titlerninsurer based in Holland, Michigan.  Thernorder was, the Bureau said, sending “a clear and simple message” that itrnintends to pursue legal action against financial institutions that pay in anyrnmanner for referrals.  The administrativernproceeding carried a civil money penalty of $200,000.</p

The Bureau said that Lighthouse Titlernhad violated the Section 8(a) of the Real EstaternSettlement Procedures Act, (RESPA) and its implementing regulation, RegulationrnX.  The relevant section of RESPA states,rn”No person shall give and no personrnshall accept any fee, kickback, or thing of value pursuant to any agreement orrnunderstanding, oral or otherwise, that business incident to or a part of a realrnestate settlement service involving a federally related mortgage loan shall bernreferred to any person.” </p

According to the consent order, since May 2009 Lighthouse had entered into a series ofrnMarketing Services Agreements (MSAs) with various parties such as, for example,rnreal estate agents, for the provision of marketing and advertising servicesrnwith the understanding that in return, the counterparties to the MSAs wouldrnrefer closings and title insurance business related to federally relatedrnmortgage loans to Lighthouse.  The Bureaurnfurther alleges that Lighthouse believed that, absent these MSAs, therncounterparties would refer their business to other companies.  </p

ThernMSAs were constructed so as to appear as if the payments were made in returnrnfor marketing services the companies were supposed to provide to Lighthouse butrnLighthouse did not determine the fair market value of the services nor did itrnmonitor the counterparties to see if they provided the services as agreed.  Instead, the Bureau says, it setrnthe fees to be paid pursuant to the MSAs, in part, by considering how manyrnreferrals it had received from the counterparties and the revenue generated byrnthose referrals.  In some cases the feesrnwere determined by considering how much Lighthouse’s competitors were willingrnto pay for marketing and advertising services.</p

CFPB said that therncounterparties referred more transactions to Lighthouse when they had MSAs thanrnwhen they did not.  The difference wasrnstatistically significant and the variations could not be explained by seasonalrnor year-to-year fluctuations.</p

In addition to the civil moneyrnpenalty the company is also required to terminate immediately any existing MSAsrnwith companies in a position to refer business to Lighthouse, and is prohibitedrnfrom entering into new MSAs with any such companies. </p

“Today’srnaction sends a clear and simple message, that quid pro quo agreementsrnfor real estate referrals are illegal,” said CFPB Director Richard Cordray.rn”The Consumer Bureau will continue to take action to ensure that the mortgagernmarket is a level playing field where everyone plays by the rules.”

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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