Question: Are Marketing Services Agreements (MSAs) legal or are they no longer permitted?
Answer: There has been no specific ruling or order that prohibits Marketing Services Agreements (MSAs). However, in recent months there has been much discussion over the legality of MSAs. This is primarily due to recent enforcement actions by the Consumer Finance Protection Bureau (CFPB) involving MSAs and alleged illegal kickbacks. In particular, in the 2014 Lighthouse Title Inc. Consent Order, the CFPB indicated that Lighthouse violated the Real Estate Settlement Procedures Act (RESPA) when it entered into MSAs with the “agreement or understanding” that, in return, the counterparties would refer closings and title insurance business to them.
Further, the Consent Order indicated that the parties did not determine a fair market value for the marketing services received, did not document how they valued the marketing services, and that Lighthouse did not monitor their counterparties to ensure the marketing services were actually being performed. [In the Matter of Lighthouse Title Inc., Administrative Proceeding File No. 2014-CFPB-0015]
More recently, the CFPB announced actions against Wells Fargo and JPMorgan Chase for engaging in illegal marketing services with a title company. The proposed Consent Order indicated the title company gave the banks’ loan officers cash, marketing materials, and consumer information in exchange for business referrals. [CFPB and State of Maryland, Office of the Attorney General v. Wells Fargo Bank, N/A, JPMorgan Chase Bank, N.A., et al, Case No. 1:15-cv-00179-RDB]
Despite these and other actions, the CFPB has not indicated that MSAs are illegal. In fact, the CFPB has not provided any guidance regarding MSAs and continues to regulate through Consent Orders. Further, there has not been any blanket regulation or court decision banning MSAs. Although some lenders recently announced decisions to discontinue such arrangements with real estate brokers, MSAs can still serve as a viable marketing tool.
Mortgage and real estate professionals interested in entering into or continuing MSA relationships must act prudently and maintain a compliant MSA program that monitors all aspects of the MSA relationship. MSAs should only be entered into after careful evaluation of the structure of the relationship. MSAs cannot be a proxy for illegal referral or kickback payments, nor can the arrangement require exclusivity. Further, the services to be performed under an MSA must be clearly articulated and documented within the agreement between the parties. A qualified and independent third party should determine the fair market value for the proposed services and a party should not pay or receive a fee above this amount as it could be a potential violation of Section 8 of RESPA. Prior to making any payments, the parties must, therefore, verify that the services contracted for have actually been performed. If any of the services are not rendered, a regulator may determine that all or a portion of the fee paid as part of the MSA is a referral fee in violation of Section 8 of RESPA.
The CFPB could have chosen to state or infer that MSAs are not permitted in the above Consent Orders or in other industry guidance. While it has not done so, any party to a MSA must ensure that they have policies and procedures in place which adhere to the factors set forth above and in the Consent Orders.
Neil Garfinkel is executive director/Realty & Title Services Compliance Group, and director/legal & regulatory compliance for Lenders Compliance Group.