RESPA, Equal Credit and Predatory Lending

RESPA Scope, Prohibited Kickbacks, and Affiliate Relationships

The Real Estate Settlement Procedures Act (RESPA) is a federal consumer protection law administered by the Consumer Financial Protection Bureau (CFPB). It applies to federally related mortgage loans secured by one-to-four unit residential properties. The primary focus of RESPA is to ensure consumers are informed about settlement costs and protected from unearned fees and kickbacks during the closing process. Settlement services governed by RESPA encompass activities like title searches, title insurance, loan origination, property appraisals, credit reports, and escrow closings.

Under RESPA Section 8, no person may give or accept any fee, kickback, or thing of value pursuant to an agreement or understanding to refer settlement business. A referral includes any oral or written action that directs or influences a consumer to choose a particular settlement service provider. Prohibited things of value go far beyond physical cash; they include gifts, special discount rates, event tickets, restaurant meals, or paid marketing materials. RESPA does, however, permit bona fide payments for goods or facilities actually furnished or for services actually performed. Moreover, promotional and educational activities sponsored by settlement providers are permitted only if they are not conditioned on referrals and do not defray the normal operating expenses of the real estate licensee.

A critical exception to Section 8 referral prohibitions is cooperative brokerage commission splits between licensed real estate brokers. As a real estate salesperson working under a supervising broker, you generally receive your commissions and referral compensation through your broker rather than directly from a client or an outside firm, though specific payment rules vary by state. Furthermore, a broker's rebate of part of their commission to their own client is generally permissible under federal RESPA rules if it is not a payment for referrals. Such rebates must be accurately disclosed to the lender and reflected on required transaction documents, bearing in mind that state laws vary regarding rebates.

Real estate professionals often participate in business partnerships known as Affiliated Business Arrangements (AfBAs). An AfBA exists when a person who can refer settlement business holds a direct or beneficial ownership interest of more than 1% in a settlement service provider, or maintains an affiliate relationship with it, and refers business to that provider. To comply with RESPA, the referrer must provide the consumer with a written AfBA disclosure at or before the time the referral is made. The disclosure must describe the relationship, estimate the charges, and generally state that the consumer need not use the affiliate; RESPA permits a lender to require the borrower to pay for a lender-selected attorney, credit reporting agency, or appraiser representing the lender's interests. Under this exception, an owner may receive a bona fide return on their ownership interest, but they cannot be compensated merely for making referrals, although separate payments for services actually performed may be allowed.