It has been more than five years since the Consumer Financial Protection Bureau ("CFPB") has issued a consent order based on alleged violations of Section 8 of the Real Estate Settlement Procedures Act ("RESPA"). On August 17, 2023, the CFPB announced a consent order with a non-bank mortgage lender and a consent order with a real estate brokerage company-totaling nearly $2 million in combined penalties-based on allegations that the mortgage company provided things of value and the real estate brokerage company received things of value in violation of Section 8 of RESPA. Perhaps it should come as no surprise that the activities at issue in the consent orders are promotional events and marketing services agreements, two arrangements about which the CFPB provided guidance in its Frequently Asked Questions in October 2020.
The consent orders highlight three specific activities that the CFPB claims to constitute the provision of improper things of value by the mortgage company to the real estate brokerage company in return for referral of mortgage origination business. First, the consent orders state that the mortgage company paid thousands of dollars per month for a subscription service that the mortgage company provided to the brokerage's (and other) real estate agents for free to allow the agents to access property reports, sales comparables and foreclosure data. The CFPB notes that, had the real estate brokers and agents paid for their own subscriptions, the retail price to the agents would have been $300 per month. In some cases, the CFPB states that the mortgage company required a real estate agent to be paired with a mortgage company loan officer before the agent could gain free access to the service. The real estate brokerage's agents made more than 400 referrals of mortgage loan business to the mortgage company during the time the subscription service was made available to real estate agents.
Second, the consent orders state that the mortgage company hosted and subsidized events for real estate brokers and agents, including events where the mortgage company paid for food, beverages, alcohol and entertainment. The mortgage company also provided free tickets to sporting events, charity galas or other events where the brokers and agents would have otherwise paid for the tickets and the food and beverages consumed at the events. As an example, the brokerage company's consent order states that the mortgage company paid more than $6,300 to host an event at a local bar for real estate agents and brokers, which covered the cost of food, alcohol, and other entertainment during the event. The CFPB states the mortgage company invited a select guest list of agents who were chosen because they referred the most mortgage origination business to the mortgage company, or who were new agents with whom the mortgage company hoped to build relationships. Without providing any detail on the marketing efforts undertaken by the mortgage company at these events, the consent orders claim that the mortgage company paid for these events, and that the real estate brokers and agents accepted things of value from the mortgage company as part of a pattern or course of conduct to create and maintain referral relationships.
Third, the consent orders assert that the mortgage company maintained marketing services agreements ("MSAs") with more than 40 real estate brokerage companies, one of which was the real estate brokerage company that entered into one of the consent orders. According to the order, the mortgage company made payments under those agreements ranging from a few hundred dollars to thousands of dollars per month for marketing services. Yet, the CFPB claims the mortgage company used the MSAs as a mechanism to pay referral fees, rather than to pay for marketing services. While acknowledging that certain marketing services performed by the real estate brokerages were directed to consumers, the consent orders highlight the performance of services directed to the brokerage's real estate agents and employees. As an example, the consent orders indicate that real estate brokerages were required to send direct mail and email campaigns with the lender's marketing content to real estate agents in addition to the members of the general public. In addition, the agreements allowed the mortgage company's loan officers to promote themselves at internal sales meetings and to host training events for real estate agents. The CFPB states "[b]y its own terms, the MSA focused on [the mortgage company] getting referrals from [the brokerage's] brokers and agents, rather than marketing [the mortgage company] to the public."
One consent order also asserted that the real estate brokerage company did not perform the marketing services it had agreed to perform, noting that the brokerage company was supposed to send 15,000 emails per month, with 50% of the email content dedicated to the mortgage company, but the brokerage company did not send any emails. In addition, the MSA required the real estate brokerage company to maintain three locations with video kiosks showing the mortgage company's ads, but the brokerage company never set up such kiosks. According to the order, the brokerage company also did not create 75 property websites per month that included the lender's content as it had agreed to do under the MSA. These MSAs also included co-advertising activities, although the CFPB claims the mortgage company performed most of the actual marketing services by maintaining a professional design team and licensed software to create marketing copy and using its own print shop to generate hard copies of co-branded advertisements. As it relates to the one brokerage company, the consent order states the brokerage company's role "was limited to making minor design suggestions and paying the postage for the co-branded mailers." Based on these assertions, the CFPB alleged the payments made for marketing bore no reasonable relationship to the services performed and, instead, were provided and received as part of a pattern of conduct to create and maintain referral relationships.
The circumstances described in these consent orders raise a number of questions based on the CFPB's own Frequently Asked Questions that provide guidance on the creation and operation of compliant promotional activities and MSAs. And without a complete picture of how these marketing activities were undertaken, it is difficult to discern what facts the CFPB focused on when deciding on the penalties imposed in the consent orders. It is also difficult to assess what facts would need to have changed for the CFPB to have reached a different conclusion. For instance, if the mortgage company had invited every real estate agent in town to the event at the bar, rather than a select group of agents, would the CFPB have viewed this event as an acceptable promotional activity under Section 8? These are the questions that are certain to be debated in the weeks to come, but all of them underscore the importance of closely scrutinizing every marketing and promotional arrangement under RESPA. The CFPB's own Frequently Asked Questions acknowledge that marketing and promotional activities can be done compliantly. But, as is generally the case with RESPA, these recent consent orders highlight that the specific facts matter.
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