By Stanley M. Gordon
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“Marketing-Services Pacts Are Given a
“The Current State of Industry Regulation,”
“Getting Better All the Time,”
“Will Working Together Work Against You?”
“Will Affiliated Business Arrangements Get Clipped?”
Section 8(c)(2) services-rendered exemption in RESPA.
The court determined that the director’s interpretation contradicted the clear language of the statute and
ignored decades of precedent.
Cordray’s assertion that there was no statute of
limitations on CFPB enforcement actions at the administrative level also was rejected. The court’s ruling reinstated a time limit on how far back the CFPB
can look to review possible RESPA violations and
impose fines. The court’s determination on the services-rendered exception in the PHH case also has
direct applicability to evaluating the compliance of
MSAs under RESPA.
Historically, the CFPB has been highly critical of MSAs,
creating a high-risk compliance environment that has
caused many service providers to withdraw from these
relationships. MSAs typically involved industry professionals, such as Realtors and title companies, entering
into marketing pacts, which augmented client referrals — and fee generation.
Over the past two years, the CFPB began to assert
a new view of MSAs under RESPA by means of consent orders. It chose to use this unilateral process to
essentially restate the law rather than going through
the public-comment process of amending the RESPA
The position of the CFPB was that a services-rendered relationship, such as an MSA, even if ostensibly
valid under Section 8(c)(2), violated Section 8(a) of
RESPA when there were referrals of settlement-service
business (i.e., title insurance services) between the
parties. This violation of the referral-fee prohibition
section of RESPA was deemed by the CFPB to be occurring even if no payments were being made for the referrals. The CFPB director determined that compliance
alone with the services-rendered exception provision
was not a safe harbor, because the services-rendered
agreement itself (the MSA) was now considered to be
a thing of value for the referral relationship.
Over the prior two years, as the CFPB signaled its
evolving view of RESPA and MSAs, many companies in
the real estate industry began to withdraw from such
pacts and other services-rendered relationships —
beyond limited joint advertising. The fact that the
CFPB could challenge an otherwise valid MSA by
asserting that it was entered into with the intent to
provide compensation for referrals was considered to
be subjective and an unacceptable compliance risk.
As noted by the federal court in the PHH case, however, the CFPB’s new interpretation disregarded HUD’s
longstanding regulations, policies and interpretations
on the elements of a valid services-rendered relationship under Section 8(c)(2) of RESPA. The interpretations by HUD also had been upheld in several other
federal court decisions. The most recent statement by
HUD in this area was its Interpretive Rule in June 2010.
This pertained to the compensation of real estate brokers by home-warranty companies for marketing and
other services rendered.
Under HUD’s interpretation, the fact that uncompen-
sated referrals might be contemplated or were occur-
ring under a services-rendered relationship, such as an
MSA, was not a factor. In the same respect, the appeals
court in its PHH case ruling found that the services-
rendered provision of Section 8(c)(2) of RESPA represent
a complete exemption. It is a safe harbor, not the first
step toward analyzing if a services-rendered agree-
ment is itself an item of value being given for referrals.
The PHH decision has the effect of reinstating HUD’s
position on services-rendered agreements based on
the plain and clear wording of the services-rendered
exception under Section 8 (c)(2) of RESPA. Hence, the
court found no reason to defer to the interpretation of
the CFPB as the federal agency with presumed expertise administering RESPA.
The ruling in the PHH case on the services-rendered
exception is so obvious that there is virtually no chance
the CFPB will prevail on appeal as to this aspect of the
court’s decision. The determination by the court to
give unrestricted removal authority of the director to
the president also is likely to remain in effect, which
could result in a dramatic change in the attitude of the
CFPB with respect to MSAs given the change in the ad-
ministration. In any event, even if the removal author-
ity aspect of the court’s decision is reversed, it will not
affect the court’s reversal of the director’s reinterpre-
tation of RESPA.
The CFPB filed for a rehearing before the full
nine-member appeals court in late November. At the
time of this writing, the court had not responded to
the request for a new hearing. The CFPB focused on
the constitutional aspect of the PHH decision that the
director can be removed at the will of the president,
arguing that removal of the director by the president
limits the authority of Congress, which required removal only for cause when setting up the agency.
The removal issue is less relevant, however, than
the chances of a reversal on the interpretation of the
services-rendered exception in RESPA, which are minimal even if the full appeals court chooses to deal with
the removal question.
If the full court does not rehear the case, the CFPB
could appeal directly to the U.S. Supreme Court. Recent rulings by the U.S. Supreme Court, however, express its view that federal agencies, when considering
regulatory changes of policy, should maintain consistency with prior administrative interpretations — unless there are compelling reasons for a change; and,
it has recognized the reliance of regulated parties on
prior agency interpretations.
If the CFPB does not obtain a reversal via appeal
to the full panel of judges, the three-judge panel’s
ruling will remain the law, but only in the District
of Columbia circuit. If the CFPB appeals to the U.S.
Supreme Court, and the appeal is rejected or it
loses after a hearing, the decision by the U.S. Court of
Appeals for the District of Columbia would become
binding across the country. Hence, in light of the composition of the U. S. Supreme Court, the CFPB may leave
the appellate court decision in effect as is, resulting
in uncertainty for the rest of the country.
n n n
For now, the PHH decision has eliminated the
rationale upon which the CFPB had challenged
services-rendered relationships, including MSAs.
It basically restores what the industry believed to be
the correct interpretation of RESPA.
As the CFPB adapts to the PHH decision, the political
realities have created an opportunity for progress in
bringing back legitimate RESPA-compliant MSAs. The
CFPB and the real estate industry would be best served
if some accommodation could be reached by the
parties as to what the boundaries of a bona fide,
non-abusive MSA should be without reinterpreting
“For now, the PHH decision has eliminated
the rationale upon which the CFPB had
challenged services-rendered relationships,
<< MSAs continued from Page 50