By: Daniel A. Cozzi

On June 12, 2014, the Consumer Financial Protection Bureau (“CFPB”) entered a Consent Order with New Jersey company, Stonebridge Title Services Inc. (“Stonebridge”), whereby Stonebridge agreed to pay $30,000 for illegal referrals in violation of Section 8 of the Real Estate Settlement Procedures Act (“RESPA”). Section 8(a) of RESPA prohibits a person from paying or receiving a thing of value pursuant to an agreement or understanding to refer business, “incident to or a part of a real estate settlement service involving a federally related mortgage loan.” 12 U.S.C. § 2607. Section 8(b) of RESPA also prohibits a person from paying or receiving any amount charged for real estate settlement services involving a federally related mortgage loan, “other than for services actually performed.” 12 U.S.C. § 2607. The CFPB charged that Stonebridge paid commissions to independent salespeople for the referral of title insurance business in exchange for commissions of up to 40% of the title insurance premiums charged by Stonebridge.   The CFPB further found that Stonebridge, “sought Independent Salespeople who could solicit title insurance business for Stonebridge. These Independent Salespeople had or developed relationships with entities, typically law firms, and referred these entities to Stonebridge for title insurance and related services on behalf of consumers.” The CFPB found that the payments to these independent salespeople violated Sections 8(a) and (b) of RESPA, 12 U.S.C. § § 2607(a), (b). The determination that certain Stonebridge “employees” were actually independent contractors was important to the decision. Section 8 of RESPA permits “[a]n employer’s payment to its own employees for any referral activities.” 12 C.F.R. § 1024.14(g)(1)(vii).

Notably, the CFPB Consent Order states, “the Independent Salespeople received Form W-2s during this period of time, they were not “employees” covered by 12 C.F.R. § 1024.14(g)(1)(vii). Rather, they acted as independent contractors, and Stonebridge did not have the right or power to control the manner and means by which the Independent Salespeople performed their duties.”

This action by the CFPB follows its May 24, 2014 settlement with mortgage brokerage firm RealtySouth. The RealtySouth matter concerned a $500,000 settlement for inadequate ABA disclosure forms and an illegal referral program established with its affiliate, TitleSouth Closing Center. The CFPB continues to use its regulatory authority to govern the conduct of many participants in consumer financial services transactions.