CFPB has made it clear they do not like Marketing Services Agreements (MSAs). Although such agreements have become somewhat commonplace in the mortgage industry, CFPB is taking a new look at them and doesn’t like what it sees.
When MSAs first surfaced several years ago, HUD issued some guidance which is used by lenders and service providers to gauge the acceptability and legality of an MSA.
Generally, to be exempt from RESPA’s kickback prohibitions, the recipient of a fee under an MSA must provide bona fide goods and services commensurate with the fees received. The mere referral of a consumer to a service provided does not constitute a bona fide service. The lender and service provider must actively participate in a process that benefits the consumer.
Recently, CFPB fined some lenders for what they see as an improper receipt of fees under MSAs connected to the referral of title business. A lender may recommend a certain title provider but cannot receive a fee just for doing so, even if the provider offers special services or fees. However, if the lender does work on behalf of the title provider, which would normally be done by that provider, the lender may be compensated for the work performed at a reasonable rate. However, keep in mind that the lender is not a licensed title insurer so the work that can be done is limited.
In many MSAs, fees are paid for “access” to the consumer. In these cases, a Realtor or Builder may allow a lender to place specific advertising and promotional information in their office at the lender’s expense or they could rent desk space in the office. The lender would then pay a fee to the Realtor/Builder for this access.
The fee, however, cannot be based on the number of loans the lender gets through that Realtor/Builder. In some cases, the marketing arrangement is reviewed and adjusted periodically. This could be seen as a violation if these adjustments are based on the volume of business being received from that Realtor/Builder. This is a dangerous practice and that should be carefully scrutinized by an attorney.
In the end, it is clear to me that CFPB does not like these MSAs and wants them to stop. Some big players, like Wells Fargo, have already done so to avoid problems and potential fines.
CFPB wants things made simple and clear to the consumer. They want lenders to lend and service providers to do what they do in the process. In TILA, they included fees paid to affiliates so consumers know what they are paying, to whom, for what services, and who gets the fees. They have said on many occasion they want the entire lending process to be transparent, no games; no hidden fees.
The attack on MSAs is the next step in the CFPB’s continuing process to regulate and simplify the mortgage loan process for consumers. This goes hand in hand with the prior QM/ATR rule additions and the upcoming TRID changes. These are geared toward making the process easier and more understandable for the consumer. Maybe, these will also simplify things for lenders as well.
If you are now in an MSA, I strongly suggest you have it reviewed by counsel, even if it was previously blessed. CFPB is taking a whole new approach to these MSAs and what may have been considered as being acceptable under the old HUD guidance may no longer be the case.
As we say at LoanLogics, the game had changed; play different.