With the recent spate of enforcement actions surrounding kickbacks, take the time to re-visit your explicit policies and procedures surrounding the anti-kickback rules.
4/30/2015 - Updated filing shows actual money penalties by participants
1/22/2015 - Baltimore CFPB Action
St. Louis CFPB Action
Kentucky CFPB Action
Baltimore Referral Fee Lawsuit
Kickbacks are a problem because they tend to inflate the cost of a transaction.
|Kickbacks tend to inflate the cost to the consumer due to the fact that someone else has to get paid for the referral. |
Prohibited - Kickbacks and Referral Fees
Section 8(a) of RESPA prohibits anyone from giving or
receiving a fee, kickback, or “anything of value” pursuant to an “agreement or
understanding” for the referral of business related to the purchase or
financing process. The purpose of the prohibition is to protect consumers from
the payment of fees when no additional work is actually performed. Kickbacks
tend to increase the cost of the transaction, since the borrower will have to
be charged more in order to cover the cost of the referral fee.
All personnel should avoid even the appearance of accepting
or paying for non-approved services.
An “Agreement or Understanding” does not have to be a formal
agreement, but can be a verbal agreement or even an agreement established
through a practice, pattern, or course of conduct.
Prohibited Payment – “Anything of Value”
Payments include, but are not limited to
Prohibited - Fee Splitting
Fee splitting is when a service provider inflates charges
and splits the excess funds with another service provider in exchange for the referral
of business. This is tantamount to a
kickback and is a prohibited practice.
Service providers may attempt to circumvent this prohibition by establishing
joint ventures or entering into business arrangements that allow referrals
between organizations and conceal the fee splitting arrangement.
Permitted – Approved Affiliated and Controlled
In some cases, there can be fee splitting or referral fees
paid under what is known as an “affiliated business arrangement”. An affiliated business arrangement is where a
person who refers settlement services has an “affiliate relationship” or “an
ownership interest of more than one percent in a provider of settlement
The payment of reasonable fees is acceptable as long as the
relationship is disclosed to the borrower and the referrer
actually performs a service
– or somehow adds value. The referral service provider may NOT be a
REQUIRED provider of services, such as an appraiser or credit bureau that the
lender must select. An affiliate relationship
structured simply to legitimize the payment of a fee is referred to as a
“sham”. Affiliates must be a “Bona Fide Provider of Services” to receive a
referral fee legally.
Approval Required - Desk Rental Arrangements
Because of the level of oversight, and the potential for the
payment of desk rental to masquerade as payment for a referral, all Desk Rental
Arrangements must be approved in advance. Provide the following:
Copy of the lease/rental agreement
Document market value of desk rental services
through Craig’s list, square footage analysis or other verifiable source
Approval Required – Joint Marketing Arrangements
Similar to a Desk Rental, partnering with referral sources
to advertise or market must also be evaluated for potential conflicts and
approved by management. Particularly when this relates to commercial
communication, the material must also be reviewed against the Provide:
Any advertising agreement
Copy of publication or proposed media
Approval Required - Marketing Vendors
Payments to marketing vendors, such as lead generation companies, may create problems if we base the payments on anything but the lead itself. If there is a payment conditioned upon a certain criteria or threshold, such as confirmed application, underwriting approval or closing, the arrangement may be considered illegal. For approval provide:
- Marketing Agreement
- Fee Schedule for Leads
In addition, the agreement and vendor must be approved to ensure the vendor complies with Fair Lending, Information Security, Customer Privacy and other consumer-facing regulation.
Approval Required - Payments to Counseling Agencies
Payment for services to a non-profit agencies for counseling services performed are permitted. Provide:
- memorandum of understanding between the lender and the non-profit agency
- establish how payments to vendor are not based on referrals .
Affiliated Business Arrangement Disclosure (AfBA) – if Applicable
Required Provider Disclosure – From LOS
Approved Settlement Services Provider List
Operating Areas Affected
Origination - Production
Penalties for Non-Compliance
Penalties for violations
of the anti-kickback provision include fines of up to $10,000 and up to one
year in prison.