CFPB’s New FAQS on RESPA Section 8 and MSAs: Is Everything Old New Again?

Today, October 7, 2020, the CFPB rescinded its Bulletin 2015-05, which discussed the legality of Marketing Services Agreements (“MSAs”) under section 8 of the Real Estate Settlement Procedures Act (“RESPA”).  The CFPB also issued new guidance on RESPA Section 8 in the form of Frequently Asked Questions (“FAQs”) on its website. Although it may appear to be good news that the CFPB has rescinded Bulletin 2015-05, there are some statements in its FAQs regarding MSAs that indicate the CFPB may not have changed its interpretation of RESPA section 8(c)(2) after the decision in the PHH case (I previously wrote about the decisions in the PHH case here and here). 

Is everything old new again?  Read on to find out what may be of concern in the CFPB’s FAQs.

I.  Rescission of Bulletin 2015-05

The CFPB issued the Bulletin 2015-05 on MSAs nearly five years ago, and it warned of the Bureau’s “grave concerns about the use of MSAs in ways that evade the requirements of RESPA,” referred to illegal kickbacks being “disguised by MSAs,” and cited to its past controversial consent orders, including Lighthouse Title.   As you may know, MSAs are typically designed to take advantage of the exemption from a RESPA section 8(a) violation under RESPA section 8(c)(2), which generally allows for payments for services actually provided as long as the reasonable market value is paid for those services. 

Since the Bureau issued its bulletin in 2015 basically saying MSAs were extremely risky under RESPA section 8, the D.C. Circuit’s decision in PHH Corp. v. CFPB case was issued in 2018, which opined on the section 8(c)(2) exemption.  The D.C. Circuit found that the RESPA section 8(c)(2) exemption was satisfied as long as the payments for services reflected the reasonable market value of the services, and that tying arrangements were not prohibited.  Many have viewed this opinion as applying to MSAs and confirming they fall under RESPA section 8(c)(2).  Under this view, this PHH decision essentially mooted much of the guidance in the CFPB’s Bulletin 2015-05. 

The CFPB’s rescission of Bulletin 2015-05 on its face makes it appear that the CFPB holds this view.  But it is worth looking at the FAQs to see what has taken its place, to fully understand the CFPB’s current view on this important topic.

II.  RESPA Section 8 FAQs

The CFPB’s new FAQs on RESPA Section 8 are divided into four categories: General; Section 8(a); Gifts and Promotional Activity; and MSAs.  And like RESPA section 8, the answers in the FAQs can be cryptic, which indicates the CFPB is not going to provide much in the way of bright-line standards in its RESPA guidance.  There are also indications that the CFPB may not have changed its tune on MSAs.

A.  Gifts and Promotional Activity

Regarding the cryptic answers, in the section on Gifts and Promotional Activity, the CFPB’s answer to the question “are gifts and promotions allowed under RESPA Section 8” begins with, “it depends.”  The FAQs contain a follow-up question, “what conditions does Regulation X establish for gifts and promotions” to fall under the law’s exemption for “normal promotional and educational activities.”  The CFPB’s answer begins with the cryptic answer, “[w]hether a particular item or activity meets each of these two conditions is a factual question.”  Then the CFPB provides cryptic factors that it finds relevant, which may be somewhat familiar from the HUD days.  Helpfully, the CFPB does provide some examples of activities and analyzes whether the activities satisfy this exemption, such as drawings for prizes or offering continuing education courses.   

B.  MSAs

Regarding MSAs, some of the guidance could raise concerns that the CFPB’s position on MSA hasn’t changed.  Under the FAQ about “the distinction between referrals and marketing series for purposes of analyzing MSAs under RESPA section 8,” the CFPB provides as an example of a “referral,” “a settlement service provider directly handing clients the contact information of another settlement service provider that happens to result in the client using that other settlement service provider.”  There could be MSAs that involve flyers or other written materials.  Is the CFPB saying that MSA partners cannot physically hand those written materials to consumers without running afoul of RESPA section 8(a)?

In response to the question “What are marketing services agreements?” the CFPB describes a “lawful MSA” as an agreement for marketing services where the payments are “reasonably related to the value of services actually performed.”  Sounds okay.  But the CFPB continues, stating that, “this is distinguished from an MSA that—whether oral, written, or indicated by a course of conduct, and looking to both how the MSA is structured and how it is implemented—involves an agreement for referrals.”  Notice the reference to “course of conduct.”

And in the FAQ about “examples of MSAs prohibited by RESPA section 8,” the CFPB states that “[a]n MSA is or can become unlawful if the facts and circumstances show that the MSA as structured, or the parties’ implementation of the MSA—in form or substance, and including as a matter of course of conduct—involves, for example…an agreement designed or implemented in a way to disguise the payment for kickbacks or split charges.”  Notice the references to the “implementation of the MSA,” “course of conduct,” and “disguis[ing].” 

In this same FAQ, the CFPB also provides as an example, “an MSA with a real estate agent that also makes referrals to the lender,” and warns that, “if the MSA was structured or implemented as a way for the lender to compensate the real estate agent for client referrals to the lender, the MSA would violate RESPA Section 8(a).”

From these statements, it appears that the CFPB may be warning against referrals being made between MSA partners, because that “course of conduct” may make the MSA violate RESPA section 8(a).  This guidance could indicate that the CFPB does not agree with how many have interpreted the D.C. Circuit’s opinion in PHH as holding that the RESPA section 8(c)(2) exemption provides a full exemption from RESPA section 8(a), even in light of referrals being contemplated by the parties.  It appears that the CFPB would still look at whether referrals are being made between MSA partners and whether the payments under the MSA are intended to “disguise” the referral arrangement.  These FAQs may warrant companies conducting a review of their MSAs for compliance with this new CFPB guidance. 

See the CFPB’s blog post here: https://www.consumerfinance.gov/about-us/blog/cfpb-provides-clearer-rules-road-respa-marketing-service-agreements/.

If you would like to discuss the CFPB’s new FAQs or would like advice regarding your company’s MSAs or other arrangements that may be subject to RESPA section 8, please contact rich@garrishorn.com.