Q: My real estate agency has Marketing Services Agreements with many lenders. Under these agreements the lenders pay us to allow them to present at office meetings, be featured on our website, and display their marketing materials in our lobby and at open houses. However, over the past year or so, lenders have been scaling back these agreements or terminating them altogether. What gives?
A: Due to a shift in the interpretation and enforcement of the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA), the residential real estate industry has chilled considerably on engaging in Marketing Services Agreements (MSAs). RESPA prohibits residential settlement service providers (lenders, mortgage brokers, realtors, title companies) from providing things of value in exchange for referrals. Originally, the Department of Housing and Urban Development (HUD) was responsible for interpreting and enforcing RESPA. However, in the aftermath of the 2008 financial crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau (CFPB) was created, and RESPA enforcement moved under the CFBP’s purview.
During HUD’s tenure, MSAs were widely used and permissible based on established interpretation. However, since taking over RESPA enforcement, the CFPB has deviated from HUD’s earlier position and has all but banned MSAs. Over the past few years, the CFPB has strongly denounced MSAs and engaged in several high-profile enforcement actions resulting in heavy fines and penalties. Consequently, your lenders are likely concerned about becoming the next target of a CFPB enforcement action, and, you should be too because the CFPB has targeted both lenders and real estate agencies.
Due to the recent change in administrations, the potential repeal of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and litigation challenging the CFPB’s authority and activities, it is not clear how regulators will regard MSAs in the future. For now, should you and your lenders continue to gamble with MSAs, take care to ensure that your MSAs are not veiled inducements to exchange referrals. Structure MSAs so all payments are solely based on the fair market value for services actually received. Maintain records that can be readily produced in a regulatory audit. Consider scaling back compensation for anything that can be considered as payment for access to realtors, instead of marketing to the public (such as lenders paying to attend meetings). While you await the final word on MSAs, consult with an attorney on ways to avoid becoming the next target of an enforcement action.