CFPB Fines Company for RESPA Violations
June 01, 2014 11:54 Filed in: Real Estate Law | RESPA
CPFB consent order fining Alabama realtor $500,000 provides important legal guidance for affiliated business arrangements.
“CFPB Fines Company for RESPA Violations”
Real estate affiliated business relationships are permissible under the law, but according to the Consumer Finance Protection Bureau, steering is not. In a recent case, an Alabama realtor was fined $500,000 for requiring its clients to close with its legally related title company. The case illustrates how business referrals can turn into illegal kickbacks.
Under Section 8(a) of RESPA, giving or accepting a “fee, kickback, or thing of value” for referring business related to real estate settlement services is prohibited. An exception to the anti-kickback rule involves affiliated business arrangements (“ABA”) when three requirements are satisfied.
- Disclosure. The referrer must disclose the existence of the arrangement including the ownership and financial interest, and a written estimate of the charges made by the provider. The disclosure must also be on a separate piece of paper and in a specific format established by the CFPB (the “Affiliated Business Disclosure Statement”).
- Required Use. The consumer must not be required to use the affiliate.
- Value. The only value that can be passed for the referral is a return based on the percentage ownership interest that the referrer has in the affiliate.
The CPFB case highlights that real estate firms may not—
- Strong-arm agents to use an affiliate.
- Obstruct consumers from exercising a free choice of settlement provider.
- Create preprinted contracts with affiliate companies pre-written in.
- Alter the CFPB model disclosure form.
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