CFPB Addresses Marketing Services Agreements


Saying it was “deeply concerned” about how marketing
services agreements are undermining consumer safeguards against kickbacks, the
Consumer Financial Protection Bureau (CFPB) has issued guidance about them
directed to the mortgage industry.  The
Bureau released a bulletin on Thursday which offers an overview of the federal
prohibition against kickbacks and the risks lenders face when then enter into the

A loose definition of marketing serves agreement is a
contract by which one company
will market another company’s products.  In the mortgage world these agreements have
sometimes taken the form of providing tangible rewards to real estate agents
for referring their customers for mortgages or provision of joint marketing
materials or events. The relationships are not limited to lenders and real
estate agents but have also involved title insurers, escrow agents, private
mortgage insurers, and others.

The CFPB is responsible for enforcing the Real Estate Settlement
Procedures Act (RESPA) which, among its goals when enacted in 1974, was the
elimination of kickbacks or referral fees which, CFPB says, tend to unnecessarily
increase the costs of settlement services. The RESPA law covers any service
provided in connection with a real estate settlement.

According to Thursday’s bulletin, marketing services agreements are typically
framed as payments for advertising or promotional services, but in some cases
those payments are actually disguised compensation for referrals. “Any
agreement that entails exchanging a thing of value for referrals of settlement
service business likely violates federal law, regardless of whether a marketing
services agreement is part of the transaction.”

In recent months CFPB
has brought enforcement actions against several companies for actions it
alleged were out and out kickbacks.  A
little over two months ago Wells Fargo, the target along with a named employee
of one action, announced it was winding down its marketing services agreement
because of increasing
uncertainty surrounding regulatory oversight of these types of arrangements.

“We are deeply concerned about how marketing services agreements are
undermining important consumer protections against kickbacks,” CFPB Director
Richard Cordray said. “Companies do not seem to be recognizing the extent of
the risks posed by implementing and monitoring these agreements within the
bounds of the law.”

The bulletin describes a number of legal violations the Bureau has
encountered in investigations involving kickbacks and referral fees. In one example
the Bureau said a title insurance company entered into marketing services
agreements where the fees paid by the company were based in part on the number
of referrals it received, as well as the revenue generated by those
referrals. In another case, a settlement service provider did not disclose
its affiliate relationship with an appraisal management company and did not
tell consumers that they had the option of shopping for services before
directing them to the affiliate.

The CFPB’s enforcement actions against companies and individuals for
violations of the Real Estate Settlement Procedures Act have resulted in more
than $75 million in penalties to date. The payment of improper kickbacks and
referral fees has been the basis of almost all of those actions.  CFPB says it intends to continue actively
the use of such agreements and related arrangements in the course
of its enforcement and supervision work.

The Bulletin is available at

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