The Consumer Financial Protection Bureau has never been very receptive to the idea of marketing service agreements, or MSAs. They view them as a cover for a pay for referral practice which is a RESPA violation. Unfortunately, in many cases they are correct in believing so and recent action taken by the CFPB has made even those parties in legitimate MSAs rethink their position on these types of agreements. Recently, Wells Fargo and Prospect mortgage announced decisions to discontinue all MSA activity.
These types of agreements have been around for decades and they haven't actually been hidden. RESPA section 8(c)(2) allows for payment of bona fide compensation for goods and services actually provided being exempt from RESPA referral fee prohibitions. "The CFPB has take a very different view from HUD of the permissibility of these arrangements. This is not a case of something that's been unenforced for decades. Everyone knows about these. HUD for years did RESPA enforcement. But now that view has changed under the auspices of the bureau via the enforcement action taken against Lighthouse and PHH matter," said Pete Mills, SVP for Residential Policy at the Mortgage Bankers Association.
He's referring to the fact that in June the CFPB fined PHH Corp $109 million for what they say was illegal referrals to a mortgage insurer in exchange for kickbacks. Earlier in the year Lighthouse Title, a Michigan-based title insurance agency was fined for alleged misuse of marketing service agreements. Many in the industry believe the CFPB was too harsh and that the practices they are citing are not illegal. "If the bureau is taking a different position on this part of RESPA, let's do this via a rule making process that allows comment and applies prospectively, as opposed to making new rules through enforcement orders," Mills said.
The CFPB has made no secret of their disdain for MSAs. Like I said, they see them as cover-ups for pay for referral practices. I've seen enough of them that were pretty obviously so which makes it difficult to argue that position. However, there needs to be more clearly defined rules as to what is an acceptable MSA and what isn't. Of course, when you have an agency that is self-funded by fines clarity isn't always in their own best interest.