IBA Compliance Connection

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Are we allowed to pay a referral fee to past mortgage customers who refer new mortgage customers, or would this be a RESPA violation? If this practice is acceptable, should we have the new mortgage customer sign a statement permitting us to inform the referring customer of their loan so we can pay the referral fee and avoid any privacy concerns?

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We believe RESPA prohibits you from paying referral fees related to consumer mortgage loans, but we are not aware of any prohibitions on paying referral fees related to commercial mortgage loans. RESPA prohibits kickbacks for referrals of real estate settlement services related to consumer mortgage loans. This prohibition does not apply to commercial loans (credit extended “primarily for business, commercial, or agricultural purposes”).  

The Illinois Banking Act and Savings Bank Act each require that a bank or savings bank obtain a customer’s authorization before disclosing their financial records to a third party, and both laws apply to commercial as well as consumer customers. Consequently, we believe you should obtain a new loan customer’s authorization before notifying the referring customer that they are entitled to a referral fee.

For resources related to our guidance, please see:

  • RESPA, 12 USC 2607(a) (“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.”)
  • RESPA, 12 USC 2606(a) (“This chapter does not apply to credit transactions involving extensions of credit— (1) primarily for business, commercial, or agricultural purposes; or (2) to government or governmental agencies or instrumentalities.”)
  • Illinois Banking Act, 215 ILCS 5/48.1(c) (“Except as otherwise provided by this Act, a bank may not disclose to any person, except to the customer or his duly authorized agent, any financial records or financial information obtained from financial records relating to that customer of that bank unless (1) the customer has authorized disclosure to the person . . .”)
  • Savings Bank Act, 205 ILCS 205/4013(d) (“A savings bank may not disclose to any person, except to the member or holder of capital or his duly authorized agent, any financial records relating to that member or shareholder of the savings bank unless: (1) the member or shareholder has authorized disclosure to the person . . .”)