Yes, there are concerns related to your proposal, but we think they could be worked through depending on the right structure. MSAs with real estate settlement providers pose an inherent risk and can be very difficult to monitor to ensure that the parties to the agreement do not run afoul of RESPA’s anti-kickback provisions. However, some recent court decisions suggest that that the arrangement you describe might be permissible under RESPA (subject to certain caveats discussed below). Having said that, the CFPB remains highly critical of such agreements.

RESPA’s anti-kickback provisions prohibit financial institutions from offering or accepting any “fee, kickback or other thing of value” to or from a realtor or other settlement service provider in exchange for a referral. However, RESPA also provides a safe harbor for “the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services performed.”

In 2016, a three-judge panel in the D.C. Circuit Court of Appeals reviewed the CFPB’s position that “a payment is ‘bona fide’ and thus permitted under Section 8(c)(2) [of RESPA] only if it is ‘solely for the service actually being provided on its own merits,’ and not ‘tied in any way to a referral of business.’” Under this CFPB interpretation, payments reasonably related to the value of a service nevertheless could amount to an impermissible kickback because the paying party would receive business that it would not have garnered through open competition. The three-judge panel unanimously rejected this interpretation, finding that:

The basic statutory question in this case is not a close call. . . . As relevant here, Section 8(c) [of RESPA] creates a safe harbor, stating: ‘Nothing’ in Section 8 ‘shall be construed as prohibiting’ the ‘payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.’ . . . Nothing means nothing. . . . To be sure, tying arrangements are outlawed in certain circumstances, but they were not outlawed by Section 8 [of RESPA] in the circumstances at issue here. A payment for a service pursuant to a tying arrangement does not make the payment any less bona fide, so long as the payment for the service reflects reasonable market value. A bona fide payment means a payment of reasonable market value.

Although the three-judge panel’s decision was overturned upon rehearing in 2018 on grounds unrelated to RESPA, the D.C. Circuit Court of Appeals reinstated the panel’s decision with respect to its interpretation of RESPA.

Also in 2018, a federal district court in Washington considered whether a “co-marketing program” offered by Zillow that allowed mortgage lenders to pay a percentage of a real estate agent’s advertising costs directly to Zillow in exchange for appearing on the agent’s listings and receiving some of the agent’s leads, was a violation of RESPA. The court found that the co-marketing program fit within RESPA’s safe harbor “because lenders received advertising services in exchange for paying a portion of their agent’s advertising costs” and the plaintiffs had “failed to provide particularized facts that demonstrate co-marketing lenders were paying more than fair market value for the advertising services they received from Zillow.”

In rendering its decision, the Washington district court cited a two-part test — originally articulated by HUD before the CFPB took over administration of RESPA — which applied the safe harbor where: (1) “goods or facilities were actually furnished or services were actually performed for the compensation paid,” and (2) “the payments are reasonably related to the value of the goods or facilities that were actually furnished or services that were actually performed.” This same test has been employed by the Seventh Circuit Court of Appeals, including in a 2012 case related to title fees, where the court found that “to prove a Section 8 [RESPA] violation, the plaintiffs must establish that the payment to an individual title agent was not reasonably related to the services that agent provided. . . . ‘RESPA . . . liability is established by making individual comparisons of compensation to actual services, not by presuming fire where there is smoke.’”

This line of cases suggests that an agreement between your bank and a real estate office to advertise on the real estate office’s website would likely fall within RESPA’s safe harbor. However, any payments made for this service above market rate could be deemed to be an impermissible payment to the real estate office in exchange for referring business to your bank. As a result, your bank would need to carefully review the current market rate for such advertising services and thoroughly document your bank’s determination as to the appropriateness of the cost. Additionally, your bank must not provide any special banking services or unusual banking terms to the realtor.

We should reiterate that this agreement would likely be deemed to violate the CFPB’s more stringent application of RESPA, since the link to your bank on the real estate office’s website could be deemed to be steering business to your bank that it would not have garnered through open competition. While the CFPB has not deemed MSAs impermissible, it has issued guidance strongly cautioning against them as they “appear to create opportunities for parties to pay or accept illegal compensation for making referrals of settlement service business” and that “efforts made to adequately monitor activities that in turn are performed by a wide range of individuals pursuant to MSAs are inherently difficult.” For this reason, if your bank chooses to accept the risk inherit to this type of MSA, we recommend closely monitoring your bank’s activities related to any MSA it signs and reviewing the market rate for similar advertising services on an ongoing basis.

In light of the differences between the cases noted above and the CFPB’s apparently contradictory position, which it has not retracted, we strongly advise you to consult with your bank counsel on this question.

For resources related to our guidance, please see:

• Regulation X, 12 CFR 1024.14(b) (“No person shall give and no person shall accept any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving a federally related mortgage loan shall be referred to any person. Any referral of a settlement service is not a compensable service, except as set forth in § 1024.14(g)(1). A company may not pay any other company or the employees of any other company for the referral of settlement service business.”)

• Regulation X, 12 CFR 1024.14(g)(1)(iv) (“Section 8 of RESPA permits: . . . A payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed; . . .”)

• Regulation X, 12 CFR 1024.14(g)(2) (“The Bureau may investigate high prices to see if they are the result of a referral fee or a split of a fee. 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 and may serve as a basis for a RESPA investigation. High prices standing alone are not proof of a RESPA violation. The value of a referral (i.e., the value of any additional business obtained thereby) is not to be taken into account in determining whether the payment exceeds the reasonable value of such goods, facilities or services. The fact that the transfer of the thing of value does not result in an increase in any charge made by the person giving the thing of value is irrelevant in determining whether the act is prohibited.”)

• PHH Corp. v. Consumer Fin. Prot. Bureau, 881 F.3d 75, 82–83 (D.C. Cir. 2018) (“The Director held that a payment is ‘bona fide’ and thus permitted under Section 8(c)(2) only if it is ‘solely for the service actually being provided on its own merits,” and not ‘tied in any way to a referral of business.’ . . . Thus, even if the reinsurance premiums had been reasonably related to the value of the reinsurance services that Atrium provided, PHH and Atrium could still be liable under the Director's reading of RESPA insofar as their tying arrangement funneled valuable business to Atrium that it would not have garnered through open competition.”)

• PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1, 41 (D.C. Cir. 2016), reh'g en banc granted, order vacated (Feb. 16, 2017), on reh'g en banc, 881 F.3d 75 (D.C. Cir. 2018) (“The basic statutory question in this case is not a close call. The text of Section 8(c) permits captive reinsurance arrangements where mortgage insurers pay no more than reasonable market value for the reinsurance. Section 8(c) contains a broad range of exceptions, qualifications, and safe harbors to Section 8(a). As relevant here, Section 8(c) creates a safe harbor, stating: ‘Nothing’ in Section 8 ‘shall be construed as prohibiting’ the ‘payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.’ . . . Nothing means nothing.”)

• PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1, 41–42 (D.C. Cir. 2016), reh'g en banc granted, order vacated (Feb. 16, 2017), on reh'g en banc, 881 F.3d 75 (D.C. Cir. 2018) (“The CFPB says, however, that the mortgage insurer's payment for the reinsurance is not ‘bona fide’ if it was part of a tying arrangement. That makes little sense. Tying arrangements are ubiquitous in the U.S. economy. To be sure, tying arrangements are outlawed in certain circumstances, but they were not outlawed by Section 8 in the circumstances at issue here. A payment for a service pursuant to a tying arrangement does not make the payment any less bona fide, so long as the payment for the service reflects reasonable market value. A bona fide payment means a payment of reasonable market value.”)

• PHH Corp. v. Consumer Fin. Prot. Bureau, 881 F.3d 75, 83 (D.C. Cir. 2018) (“The panel was unanimous, however, in overturning the Director's interpretation of RESPA. It held that Section 8 permits captive reinsurance arrangements so long as mortgage insurers pay no more than reasonable market value for reinsurance. . . . And, even if the Director's contrary interpretation (that RESPA prohibits tying arrangements) were permissible, the panel held, it was an unlawfully retroactive reversal of the federal government's prior position. . . . The panel opinion, insofar as it related to the interpretation of RESPA and its application to PHH and Atrium in this case, is accordingly reinstated as the decision of the three-judge panel on those questions.”)

• In re Zillow Group, Inc. Securities Litigation, 2018 WL 4735711, at *7 (W.D. Wash. Oct. 2, 2018) (“But even if the Court draws an inference that co-marketing agents were making mortgage referrals, such referrals would fall under the Section 8(c) safe harbor because lenders received advertising services in exchange for paying a portion of their agent’s advertising costs. . . . Therefore, the Court rejects Plaintiffs’ theory that the co-marketing program, and by extension Zillow, violated RESPA by allowing lenders to pay a portion of agent’s advertising costs.”)

• In re Zillow Group, Inc. Securities Litigation, 2018 WL 4735711, at *7 (W.D. Wash. Oct. 2, 2018) (“While Plaintiffs have explained in detail how the co-marketing program is structured, they have failed to provide particularized facts that demonstrate co-marketing lenders were paying more than fair market value for the advertising services they received from Zillow.”)

• In re Zillow Group, Inc. Securities Litigation, 2018 WL 4735711, at *5 (W.D. Wash. Oct. 2, 2018) (“Notwithstanding the law’s prohibition on paying for referrals, RESPA’s Section 8(c) contains a safe harbor provision that permits ‘[a] payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.’ . . . The Ninth Circuit has interpreted the safe harbor to apply (1) where ‘goods or facilities were actually furnished or services were actually performed for the compensation paid’ and, (2) ‘the payments are reasonably related to the value of the goods or facilities that were actually furnished or services that were actually performed.’”)

• Howland v. First Am. Title Ins. Co., 672 F.3d 525, 531 (7th Cir. 2012) (“Based on its reading of RESPA Section 8 and its own regulations, HUD announced a two-part test to determine whether a fee from a lender to a mortgage broker violates RESPA's kickback provisions: (1) ‘whether goods or facilities were actually furnished or services were actually performed for the compensation paid,’ and (2) ‘whether the payments are reasonably related to the value’ of the goods, facilities, or services.”)

• Howland v. First Am. Title Ins. Co., 672 F.3d 525, 534 (7th Cir. 2012) (“Rather, as the statute, regulations, later HUD guidance, and court decisions have made clear, to prove a Section 8 violation, the plaintiffs must establish that the payment to an individual title agent was not reasonably related to the services that agent provided. As the Fifth Circuit explained, ‘RESPA § 8 liability is established by making individual comparisons of compensation to actual services, not by presuming fire where there is smoke.’”)

• CFPB Compliance Bulletin 2015-05, RESPA Compliance and Marketing Services Agreements (October 8, 2015) (“As described above, the Bureau has found that many MSAs necessarily involve substantial legal and regulatory risk for the parties to the agreement, risks that are greater and less capable of being controlled by careful monitoring than mortgage industry participants may have recognized in the past. MSAs appear to create opportunities for parties to pay or accept illegal compensation for making referrals of settlement service business. The Bureau also found that efforts made to adequately monitor activities that in turn are performed by a wide range of individuals pursuant to MSAs are inherently difficult. Especially in view of the strong financial incentives and pressures that exist in the mortgage and settlement service markets, the risk of behaviors that may violate RESPA are likely to remain significant. That can be true even where the terms of the MSA have been carefully drafted to be technically compliant with the provisions of RESPA.”)