CFPB Does Not Like Market Services Agreements

On October 8, 2015, the Consumer Financial Protection Bureau (CFPB) issued long awaited guidelines about Market Services Agreements (MSA). Unfortunately, the guidelines do not provide any real direction about the legality of MSAs and the answer remains, “it depends.” MSAs are often entered into among realtors, banks, mortgage companies, title insurance companies and other real estate professionals where one party agrees to pay the other for marketing services.

Since the CFPB began its role as chief regulator in charge of compliance with the Real Estate Settlement Practices Act (RESPA), the legality of MSAs has been the primary focus of enforcement actions by the CFPB. Indeed, the CFPB admits that their analysis of whether MSAs comply with RESPA requires a fact-intensive inquiry and that not much can be gleaned from review of CFPB’s enforcement actions. The CFPB states that in their view that MSAs are often designed to disguise kickbacks or other payment for referrals.

Without directly saying that MSAs violate RESPA, when reading between the lines the CFPB strongly discourages the use of these agreements. The CFPB includes both written and oral agreements in their discussion of the issue and mention that even if a written agreement technically complies with RESPA, it may still be a violation in the way the agreement is performed.

So can a marketing agreement comply with RESPA? The short answer is yes. A marketing agreement can comply with RESPA but proceed with extreme caution. The most basic requirement that must be met is that actual services are performed and that there is no variation in payments based on volume or quality of referrals.

As noted by the CFPB, many industry members are canceling their MSAs and that may prove the safest alternative. Although we know many still participate in MSAs, these agreements may soon be a relic of the past.

For more information, click here for CFPB’s guidelines. If you have questions about marketing services agreements or other RESPA questions, please contact Nazia Hasan or any other attorney at Gomberg Sharfman PC.