Can you expand on why a live transfer is one to stay away from?

Online lead generation companies where the lead generation company has spoken directly with the consumer and then transfers the “Live Handoff” over to the Lender or Loan Officer (especially if the Lead Generation company is not licensed under the Safe Act in their respective state) is a huge concern for regulators in today’s regulatory environment. The regulators have indicated many of these companies are nothing more than unlicensed “mortgage brokers” who are operating in violation of the Loan Officer Compensation Rule that went into effect on Jan. 1, 2014 because the lead generation company is soliciting consumer information for loan products without a license. The CFPB has publicly stated they are concerned with this type of lead generation marketing tactic because consumers are prone to give out sensitive personal and financial information. Additionally the CFPB has stated that “live transfers” confuse consumers into thinking they are dealing directly with a lender when in fact they are not. In addition to Loan Officer Compensation issues there are a myriad of other compliance headaches (Fair Lending Act, UDAAP, Fair Housing Act, Telephone Consumer Protection Act, Telemarketing Sales Rule, privacy issues, CAN Spam Act, etc.) which make these types of “Live transfer” lead generation companies fertile grounds for regulatory enforcement action.

Note: This transcript has been edited from the March 2015 RESPA Section 8 webinar for clarity and completeness.

Answered By: Marx Sterbcow

How do you recommend identifying fair value for a lender to have a banner ad on a realty website, given that their website is a standard platform for their business?

I would strongly recommend that a third party valuation company be hired to assign the value for your banner ad on the real estate agent’s website. There are CPA firms or website valuation companies than can provide you with a statistical valuation for a banner on a particular website.

Note: This transcript has been edited from the March 2015 RESPA Section 8 webinar for clarity and completeness.

Answered By: Marx Sterbcow

We have a program that pays $25 to every person who sends us a referral is this illegal? They aren’t settlement service providers though.

Yes this would be a violation of RESPA Section 8(a) because the statute states that anyone who refers settlement service business. It does not limit illegal kickbacks or referral arrangements to only settlement service providers. In fact I represented a client in a RESPA enforcement action for just this type of program.

Answered By: Marx Sterbcow

The title company we use posts photos of the buyers at the closing table on their Facebook page after the closing. Is this okay?

In today’s environment the general rule of thumb is not to participate in this type of activity because some are concerned this could be a violation of NPI especially when the name of the buyer and/or seller is displayed on the social media website as buying or selling a house.

Answered By: Marx Sterbcow

In regards to illegal marketing agreements, who can we ask to find out if our arrangement would be considered illegal?

You would need to retain compliance counsel because this is an ever changing picture as to what is deemed successful by the Bureau. Many of these things that were thought to be just fine four or five years ago are no longer acceptable. So you need to hire an attorney.

Answered By: Charles Cain

Some organizations like MBA have basically told its members that MSA’s are disliked by the CFPB so you should just avoid them. Do you agree?

I agree that that’s what the MBA says. I think each individual organization needs to make their own risk assessment to determine whether an MSA is something they can properly manage. I certainly identified the challenges that there are in management of these compliance risks, not just in terms of what your agreement is and what your compliance structure is, but also that you can control at all levels of your organization, that the agreement really is just for advertising and marketing and not as a means to get around the referral fee prohibition. That’s a challenge today, but I think it’s possible.

Answered By: Brian Levy

How does the CFPB’s position that “the contract is a thing of value” work?

In PHH, what Director Cordray said, that the Bureau has asserted, is that the opportunity to participate in a profit-making venture, or to receive payments of some sort, even if you don’t actually receive it, is a thing of value in and of itself. That’s their position. I haven’t seen it applied to anything in particular, because I don’t think they needed that point to control in order to reach the conclusions they have. Nevertheless, it raises some very interesting questions around traditional concepts of consideration in legal agreements. In law school we learned that an agreement has to have consideration in order to be enforceable, well, they’re suggesting that the mere opportunity to participate in an agreement has value in and of itself, in the absence of consideration. That’s throwing out a couple hundred years of common law. I don’t know if that’s going to be upheld. It also raises all kinds of problems for other types of permissible RESPA structures like affiliated business arrangements. The argument would suggest that while the affiliated business arrangement might be compliant, that the opportunity to participate in an affiliated business arrangement, is somehow a payment for a referral, is a separate thing of value. I don’t think that was their intent, but we are still left to wonder what that might mean.

Answered By: Brian Levy

Can a lender work with realtors to market each other’s clients without any compensation exchanging hands?

It’s a tricky question, and the reason I think it’s tricky, is the question, “is there a thing of value going back and forth for a referral?” And a thing of value could be non-monetary; it doesn’t have to be cash or cash equivalent. So, there can’t be a thing of value being paid, or being provided in return for a referral. In the example provided, I don’t know what they are doing for each other, and if that is in return for referrals. It may simply be a matter of two people marketing each other and not having an agreement about referrals. Theoretically that’s okay, but again, you’re going to have a tough time proving that you don’t have an agreement regarding referrals.

Answered By: Brian Levy

Are marketing materials the only place you should look for UDAAP violations?

No. There’s operational issues that you can have in UDAAP, how you process something, how you service something, all of that can be subject to UDAAP. There’s only so much that I can talk about in one presentation but UDAAP is much broader than just your marketing.

Answered By: Brian Levy

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