The Consumer Financial Protection Bureau (CFPB) announced today, September 30, 2014, that they had entered into a Consent Order with Lighthouse Title, a Michigan title insurance agency, for entering into Marketing Service Agreements (MSAs) with various real estate brokers with the understanding that the companies would refer mortgage closing and title insurance business to Lighthouse Title.
The CFPB found that Lighthouse Title violated the Real Estate Settlement Procedures Act (RESPA) which prohibits providing something of value to any person with an agreement or understanding that the person will refer real estate settlement services.
The CFPB noted that Lighthouse’s MSA agreements made it appear as if the payments would be based on marketing services the companies were supposed to provide to Lighthouse Title. “Lighthouse actually set the fees it would pay under the MSAs, in part, by considering the number of referrals it received or expected to receive from each company.” The Consumer Financial Protection Bureau’s investigation found that the companies on average referred significantly more business to Lighthouse Title when they entered into MSAs than when they did not enter into them.
The CFPB issued a civil money penalty against Lighthouse Title in the amount of $200,000.00; prohibited Lighthouse Title from entering into any Marketing Service Agreements in the future; ordered Lighthouse to terminate all existing MSAs; and Lighthouse must document for a period of five years all exchanges of things of value worth $5.00 or more with persons in a position to refer business.
Most of the Consent Order is below:
The Consumer Financial Protection Bureau (“Bureau”) has reviewed the practices of Lighthouse Title, Inc. (“Respondent”) regarding the use of marketing services agreements, and has identified violations of Section 8(a) of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2607, and its implementing regulation, Regulation X, 12 C.F.R. Part 1024 (formerly codified at 24 C.F.R. Part 3500) (collectively, “RESPA”): Respondent entered the marketing services agreements as quid pro quos for the referral of business, and Respondent paid fees under: the agreements that were set based on the amount of business that the other party had referred or that Respondent anticipated would be referred in the future. The Bureau issues this Consent Order (“Order”) under Sections 1053 and 1055 of the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. §§ 5563, 5565.
JURISDICTION
1. The Bureau has jurisdiction over this matter under Sections 1053 and 1055 of the CFPA, 12 U.S.C. §§ 5563, 5565.
STIPULATION
2. Respondent has executed a “Stipulation and Consent to the Issuance of a Consent Order,” dated September 24, 2014 (“Stipulation”), which is incorporated by reference and is accepted by the Bureau. By this Stipulation, Respondent has consented to the issuance of this Order by the Bureau under Sections 1053 and 1055 of the CFPA, 12 U.S.C. §§ 5563 and 5565, without admitting or denying any findings of fact or conclusions of law, except that Respondent admits the facts necessary to establish the Bureau’s jurisdiction over Respondent and the subject matter of this action.
DEFINITIONS
3. The following definitions shall apply to this Order:
a. “Effective Date” means the date on which the Consent Order is issued.
b. “Enforcement Director” means the Assistant Director of the Office of Enforcement for the Consumer Financial Protection Bureau, or his/her delegate.
c. For purposes of paragraphs 27 and 28, “Marketing Services Agreement” and “MSA” mean an agreement pursuant to which Respondent is to provide any Thing of Value to a person in a position to refer business incident to or a part of a real estate settlement service involving a federally related mortgage loan in exchange for marketing or advertising services. This includes agreements that allow Respondent to market or promote Respondent’s services to such a person or its employees or agents, agreements that require a person or its employees or agents to endorse Respondent or Respondent’s services, agreements pursuant to which such a person is to market Respondent’s services to others, and agreements to include references to Respondent in any advertising placed by such a person. An agreement for mass advertising for consumer consumption pursuant to which Respondent is to pay a person who does not provide real estate settlement services to place an advertisement to the public (e.g., an agreement to place an advertisement in a newspaper or magazine or on a television or radio station) is not a marketing services agreement unless the person endorses Respondent as part of the advertisement.
d. “Related Consumer Action” means a private action by or on behalf of one or more consumers, or an enforcement action by another governmental entity, brought against Respondent based on substantially the same facts as described in Section IV of this Order.
e. “Respondent” means Lighthouse Title, Inc., and its successors and assigns.
f. “Thing of Value” means any payment, advance, funds, loan, service, or other consideration, including, without limitation, monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distribution of partnership profits, franchise royalties, credits representing monies that may be paid at a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity, special bank deposits or accounts, special or unusual banking terms, services of all types at special or free rates, sales or rentals at special prices or rates, lease or rental payments based in whole or in part on the amount of business referred, trips and payments of another person’s expenses, or reduction in credit against an existing obligation.
BUREAU FINDINGS AND CONCLUSIONS
The Bureau finds the following:
4. Respondent is a title insurance agency located in Holland, Michigan, that, among other activities, provides settlement services for federally related mortgage loans in Michigan.
5. RESPA Section 8(a) provides, “No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” 12 U.S.C. § 2607(a).
6. Repeated payments “connected in any way with the volume or value of the business referred . . . [are] evidence that [the payments are] made pursuant to an agreement or understanding for the referral of business.” 12 C.F.R. § 1024.14(e).
7. “If the payment of a thing of value bears no reasonable relationship to the market value of the goods or services provided, then the excess is not for services or goods actually performed or provided. These facts may be used as evidence of a violation of Section 8 . . . .” 12 C.F.R. § 1024.14(g)(2).
8. A fair market value for goods or services is based only on the value of the goods or services in and of themselves and cannot include any consideration of the value of any referrals of business incident to or a part of real estate settlement services related to federally related mortgage loans. Id.
9. RESPA Section 8(c)(2) provides an exemption for “payment[s] to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.” 12 U.S.C. § 2607(c)(2); see also 12 C.F.R. § 1024.14(g)(1)(iv).
10. Payments to non-employees for referrals are prohibited by Section 8(a) and cannot be bona fide payments for goods actually furnished or services actually performed. 12 U.S.C. § 2607(a); 12 C.F.R. § 1024.14(b) (“A company may not pay any other company or the employees of any other company for the referral of settlement service business.”).
Findings and Conclusions Related to Respondent’s Use of Marketing Services Agreements
11. Since May 2009, Respondent entered a series of Marketing Services Agreements (“MSAs”) with various counterparties for the provision of marketing and advertising services.
12. Respondent entered and renewed these MSAs with the agreement or understanding that in return the counterparties would refer closings and title insurance business related to federally related mortgage loans to Respondent.
13. Respondent believed that if it did not enter MSAs with these counterparties that the counterparties would refer their business to other companies.
14. Respondent did not determine a fair market value for the services it allegedly received pursuant to the MSAs.
15. Respondent did not document how it determined the fair market value for the specific services allegedly received under the MSAs.
16. Respondent set the fees to be paid pursuant to the MSAs, in part, by considering how many referrals it had received from the counterparties and the revenue generated by those referrals.
17. In some cases, Respondent also set the fees, in part, by considering how much competing title insurance companies were willing to pay those same counterparties for marketing and advertising services.
18. Respondent did not diligently monitor its counterparties to ensure that it received the services for which it contracted.
19. The counterparties referred significantly more transactions to Respondent when they had MSAs with Respondent than when they did not. The differences are statistically significant and are not explained by seasonal or year-to-year fluctuations.
20. Entering a contract is a “thing of value” within the meaning of Section 8, even if the fees paid under that contract are fair market value for the goods or services provided.
21. Entering a contract with the agreement or understanding that in exchange the counterparty will refer settlement services related to federally related mortgage loans violates Section 8(a).
22. In addition, marketing fees set by considering the amount of business received from the counterparty are connected with the volume or value of the business referred, and therefore are evidence that the payments are made pursuant to an agreement or understanding for the referral of business.
23. The fees that Respondent paid were not a fair market value for the services for which Respondent contracted.
24. Thus, Respondent violated Section 8(a) by entering contracts-the Marketing Services Agreements with the agreement or understanding that in exchange the counterparties would refer closings and title insurance business related to federally related mortgage loans to Respondent and by paying counterparties to those contracts fees with the agreement or understanding that in exchange the counterparties would refer closings and title insurance business related to federally related mortgage loans to Respondent.