CFPB imposes $1.75 million fine for giving “things of value” in return for referrals

This blog often recommends the DIRT Listserv and today is no exception. Professor Dale Whitman reported on August 22 that the CFPB issued an order against Freedom Mortgage Corporation, a residential mortgage loan originator and servicer headquartered in Boca Raton, Florida, for providing things of value—including subscription services, events, and monthly marketing services agreement payments—in exchange for referrals of mortgage loans in violation of the Real Estate Settlement Procedures Act and its implementing Regulation X. The order requires Freedom to stop its unlawful activities and pay a $1.75 million civil money penalty.

You can read the order in its entirety here.

Professor Whitman noted that since RESPA Section 8 has been around for 50 years, one might think that such practices are a thing of the past.

These specific violations were noted:

1. Freedom entered into agreements with local real estate agents for the agents to provide marketing services for Freedom’s mortgage activities. CFPB said the payments were really referral fees for the agents to refer mortgage loan customers to Freedom. Apparently, no “marketing services” were provided.
2. Freedom gave the agents free access to valuable industry subscription services, which provided information concerning property reports, comparable sales, and foreclosure data. These subscriptions, which were worth thousands of dollars per month, were provided in return for the agents referring mortgage loan customers to Freedom.
3. Freedom provided entertainment, food, and drinks at parties and other events to the agents that were referring loan customers to it. They also provided free tickets to sporting and charity events. They didn’t make similar distributions to agents who were not referring customers.

Professor Whitman questions whether a lender really cannot throw a pregame party or provide a skybox at a game for real estate agents. He suggests that there must be a de minimus exception. But the order doesn’t give much guidance on the boundaries of Section 8.

I agree with the Professor. If you represent clients that provide settlement services and rely on referrals, you should advise them to be very cautious about providing free services and entertainment persons who make the referrals.