Supreme Court Hands ‘Unearned’ Fees Victory to Mortgage Industry


The Supreme Court late this week ruled that federal regulators cannot use RESPA as a price-setting statute to deter lenders and other settlement service providers from charging excessive fees or even “unearned” or bogus fees for which no service is provided.  

The 9-0 decision comes in a case involving Quicken Loan where the justices said the Real Estate Settlement Procedures Act of 1974 only prohibits fee-splitting between two parties and kickback schemes.

“In our view, [RESPA] unambiguously covers only a settlement service provider’s splitting  of a fee with one or more persons; it cannot be understood to reach a single provider’s retention  of an unearned fee,” the high court said in Freeman v. Quicken Loans.

The Freemans alleged that Quicken Loans charged them $1,000 for discount points but they didn’t receive a corresponding reduction in the mortgage interest rate.  Quicken Loans claimed the borrower did receive a reduction in the interest rate.

The dispute over the discount points has never been resolved by the lower courts. Attorneys and the courts have wrestled with the Department of Housing and Urban Development’s interpretation that RESPA prohibits unearned fees.

With the U.S. appeals courts divided on the RESPA issue, the Supreme Court decided to review the Fifth Circuit Court of Appeals decision in Freeman v. Quickens Loans.  The New Orleans circuit court had rejected that theory that RESPA prohibits unearned fees.  

“When read in its entirety, RESPA is an anti-kickback statute, not an anti-price gouging statute,” the Fifth Circuit Court of Appeals said in its decision.   

The Supreme Court unanimously ruled in Quicken Loan’s favor and affirmed the Fifth Circuit’s decision.

The high court’s decision is considered a win for the mortgage industry and a setback for the new Consumer Financial Protection Bureau. The bureau filed an amicus brief that supported HUD RESPA interpretation on unearned fees and urged the justices to rule in favor of the Freemans.

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