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Looks as though you can fight City Hall! In what may become a landmark decision, Judge Charles R. Simpson III, of the U.S. District Court for the Western District of KY, ruled in favor of a small Louisville, KY, law firm against Richard Cordray, and the powerful Consumer Financial Protection Bureau.
The case reversed CFPB’s actions against Borders & Borders involvement in what was considered by Cordray as a violation of RESPA for receiving illegal kickbacks for the mere referral of business.
Borders & Borders had joint ownership agreements with nine separate title companies, each sharing in revenue generated based on their share of ownership. The judge says, “That’s okay.”
Judge Simpson said there is no dispute. Borders & Borders arrangement meets the two conditions set to qualify for the safe harbor, sheltering such affiliated business arrangements (ABA’s) set by Congress back in 1983.
- Borders & Borders clearly disclosed the affiliations to the consumers; and
- The only ‘thing of value’ received by members of the affiliated title companies was based on each’s ownership interest.
This is a clear victory for Borders & Borders, as well as, for all companies now engaged in such legal arrangements. However, such parties should be very careful that their arrangement also meets the simple criteria mentioned in the court’s decision.
With this decision, these two conditions will become the bellwether by which all future interpretations may be based.
Lenders need to make sure that any affiliated arrangements are bona fide agreements to share revenues based on legal ownership and not sham arrangements to simply steer business and/or revenues between entities.
Mortgage Services Agreement (MSA) arrangements such as desk rentals and advertising expense sharing may still be suspect.
If you are now in either an Affiliated Business Arrangement or an MSA or considering entering into one, I suggest you have it carefully reviewed and blessed by your attorney.
Even with this ruling, it’s better to be safe than sorry.
