CFPB Orders New Jersey Title Company To Pay $30,000 For Illegal “Kickbacks”

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.

House Passes Mortgage Choice Act Proposing Amendment to Qualified Mortgage Rule

By:      Michael Meehan

On June 9, 2014, the United States House of Representatives passed the Mortgage Choice Act of 2014, which, among other things, revises the definition of “points and fees” under the Truth in Lending Act’s qualified mortgage rule to exempt both affiliated and unaffiliated title fees.

Under the Dodd-Frank Act, a qualified mortgage may not have points and fees that exceed three percent (3%) of the loan amount. “Points and fees” is a defined term in the statute, which currently encompasses fees paid to affiliated title companies (those companies with which the lender has an affiliated business arrangement) but not unaffiliated title companies. According to the Act’s proponents, Representatives Bill Huizenga (R-Mich) and Gregory Meeks (D-NY), the current definition precludes many affiliated loans from meeting the qualified mortgage rule’s points and fees threshold, further restricting consumer access to mortgage credit, or at a minimum, increasing the cost of such credit. The Act amends the definition under the rule to also exclude affiliated title fees, which its proponents believe will result in a greater number of qualified mortgage loans and expanded credit opportunities for low and moderate income homebuyers.

The Act has been widely supported by financial services and housing trades, including the Mortgage Bankers Association, National Association of Federal Credit Unions, National Association of Home Builders, and the National Association of Realtors. However, opponents of the Act, such as the Center for Responsible Lending and Consumer Federation of America, worry that the amendment will allow lenders to charge excessive title fees to affiliated entities while remaining within the protections that the qualified mortgage rule affords.

The Act passed the House by unanimous vote and awaits a determination in the Senate. If passed, the Act instructs the Consumer Financial Protection Bureau to finalize regulations implementing the new definition within 90 days.