Blog: FIsion Blog | 02 October 2017
On September 27, 2017, the CFPB announced a consent order (Order) with real estate settlement services provider, Meridian Title Corporation (Meridian), for alleged violations of the Real Estate Settlement Procedures Act (RESPA). RESPA Section 8(a) and its implementing regulation, Regulation X, prohibit parties from entering into an agreement to exchange fees, kickbacks, or things of value pursuant to an agreement for the referral of settlement services in connection with a “federally related mortgage loan.” 12 CFR 1024.14(b). However, affiliated business arrangements for settlement service providers do not violate RESPA if the relationship is properly disclosed to the “person whose business is referred.” 12 CFR 1024.15(b)(1). There are also certain allowances for returns on ownership for affiliated entities. 12 CFR 1024.15(b)(3).
Meridian is a title insurance agency and a real estate settlement agent. Arsenal (Arsenal Insurance Corporation or Arsenal) is a title insurance underwriter. According to the CFPB, Meridian and Arsenal share owners and control people, creating an affiliated relationship under RESPA. The two companies also allegedly maintained an agreement whereby Meridian received title insurance orders from lenders and real estate agents then assigned them to various underwriters, including Arsenal. Payment for performance of this type of service is often permissible under RESPA. However, in this case, the CFPB asserts that Meridian kept money outside of the contracted amount and beyond the reasonable amount for the services it performed. In addition, the extra money was not a return on an ownership interest. Accordingly, in the CFPB’s view, the additional amount retained by Meridian constituted a “thing of value” per an agreement that Meridian would refer business to Arsenal, and requires disclosure of the affiliated business arrangement.
The CFPB concluded that, from January 1, 2014 until December 31, 2016, Meridian violated RESPA by routinely selecting Arsenal as the insurer but failing to disclose their relationship to more than 7,000 borrowers. Under the Order, Meridian agreed to “cease the illegal practice,” provide applicable disclosures for future covered referrals, and pay up to $1.25 million in consumer redress.
The CFPB also directed Meridian to maintain a Compliance Committee that ensures:
Notably, while the CFPB required redress from Meridian, it did not impose a penalty.
Similar to past consent orders, the CFPB likely expects companies to comply with guidance that may be inferred from this Order. Specifically, real estate settlement providers that work with affiliates should review the agreements, commissions, and disclosures relevant to the relationship to verify RESPA compliance.
