Shedding Light on Inducements
I am struggling to understand what constitutes an illegal inducement —and what to do about it — and I seek your input. As we all know, the Real Estate Settlement Procedures Act (12 USC §2607) specifically prohibits the exchange of anything of value for referral of business related to a federally insured mortgage transaction.
We all agree that under RESPA payments tied to numbers of referrals are not allowed. Recently, a number of agreements through which payments are made to “business partners” (generally considered compliant in the past) have been scrutinized by the CFPB and found to be illegal inducements under RESPA. These cases have resulted in crippling fines and other onerous consequences for the participants.
So, what about an instance where a branch manager of a title insurer entices an attorney agent away from a competitor with the offer of a more generous agent split? Or when a service company for attorney agents offers searches and support services for a nominal amount (or free for that matter) to secure an attorney’s membership in its attorney-agent program? What about when referrals of clients are predicated upon required use of an affiliate? Are these practices the natural flow of a briskly competitive free market? Do they constitute questionable market conduct, at best? Or are they simply illegal inducements?
Traditional free market practices (such as these) may not be suitable where the selection of the provider is not made by those who ultimately foot the bill. Because of the state’s inability to adequately enforce RESPA (significantly exacerbated by the current budget crisis in Illinois), we do not receive much guidance through local enforcement. That’s where the consumer comes in.
I wonder how consumers might react if they were made aware of sweet deals among referral sources? Are the costs to consumers higher as a result? With the new CFPB consumer complaint portal we may have an opportunity to see how they react. Educating and engaging consumers about questionable practices may be just the way to get some sunshine on a very shadowy corner of the business. As Justice Louis Brandeis said, “Sunlight is said to be the best of disinfectants.”
What do you think? Let’s talk about it.
Showing posts with label RESPA. Show all posts
Showing posts with label RESPA. Show all posts
Tuesday, September 8, 2015
Wednesday, June 24, 2015
RESPA Anti-Inducement Regs
In the News
Presented by Prairie Title
Commentary by Frank Pellegrini, Prairie Title CEO
June 24, 2015 – There was a real estate-related article in the Jacksonville (FL) Daily Record recently that caught my attention. It discussed the illegal practice of agents being paid to refer business to title companies. It’s a practice that has become more widespread in Illinois recently and plagued other areas of the country as well.
To quote the article: “When a TV ad shows a man in a lab coat promoting a new prescription drug, viewers realize the ‘doctor’ is being paid to recommend it. But, when a Realtor recommends a lender or title company to their client, the client likely assumes the Realtor isn’t being paid to give that advice. Sometimes he or she is, and the consumer is often the one paying for it. The Consumer Financial Protection Bureau is pursuing title, mortgage and real estate companies that give or receive incentives for customer referrals. The practice is illegal under Section 8 of the Real Estate Settlement Procedures Act.”
In New York State recently, Gov. Andrew Cuomo sparked quite a bit of discussion as he led the charge to impose new “anti-inducement” regulation upon the real estate business in his state.
As the Insurance Journal reported: “The regulation outlines categories of expenditures which — when provided as an inducement for title insurance business — are improper and violative of the New York Insurance Law. These expenditures include meals, entertainment, vacations and gifts that are provided to attorneys, real estate professionals, and others, who represent consumers and order title insurance on their behalf.” In other words, title professionals will not be able to use “inducements” to secure business.
In my opinion, these developments are overdue. I have long been perplexed by the lax enforcement of Section 8 rules at the federal and state level. Section 8 exists for a reason – to keep kickbacks from determining who gets real estate business. When Section 8 is violated, it creates a bad situation for real estate professionals and does consumers no favors.
As an aside, when you’re faced with customers who have questions about the value of title insurance, show them Title Insurance: A Friend in Deed, published in the Wall Street Journal. It’s one of the best independent articles on the subject that I’ve read.
Let’s keep the conversation going. Call or email me: 708-386-7900; frank@prairietitle.com.
Other stories we’re following:
Beige Book: Housing Continues to Expand.
Lenders, Title Professionals Prepare for TRID.
Most economists say no Housing Bubble.
Largest Monthly Home Price Gain in two years.
Presented by Prairie Title
Commentary by Frank Pellegrini, Prairie Title CEO
June 24, 2015 – There was a real estate-related article in the Jacksonville (FL) Daily Record recently that caught my attention. It discussed the illegal practice of agents being paid to refer business to title companies. It’s a practice that has become more widespread in Illinois recently and plagued other areas of the country as well.
To quote the article: “When a TV ad shows a man in a lab coat promoting a new prescription drug, viewers realize the ‘doctor’ is being paid to recommend it. But, when a Realtor recommends a lender or title company to their client, the client likely assumes the Realtor isn’t being paid to give that advice. Sometimes he or she is, and the consumer is often the one paying for it. The Consumer Financial Protection Bureau is pursuing title, mortgage and real estate companies that give or receive incentives for customer referrals. The practice is illegal under Section 8 of the Real Estate Settlement Procedures Act.”
In New York State recently, Gov. Andrew Cuomo sparked quite a bit of discussion as he led the charge to impose new “anti-inducement” regulation upon the real estate business in his state.
As the Insurance Journal reported: “The regulation outlines categories of expenditures which — when provided as an inducement for title insurance business — are improper and violative of the New York Insurance Law. These expenditures include meals, entertainment, vacations and gifts that are provided to attorneys, real estate professionals, and others, who represent consumers and order title insurance on their behalf.” In other words, title professionals will not be able to use “inducements” to secure business.
In my opinion, these developments are overdue. I have long been perplexed by the lax enforcement of Section 8 rules at the federal and state level. Section 8 exists for a reason – to keep kickbacks from determining who gets real estate business. When Section 8 is violated, it creates a bad situation for real estate professionals and does consumers no favors.
As an aside, when you’re faced with customers who have questions about the value of title insurance, show them Title Insurance: A Friend in Deed, published in the Wall Street Journal. It’s one of the best independent articles on the subject that I’ve read.
Let’s keep the conversation going. Call or email me: 708-386-7900; frank@prairietitle.com.
Other stories we’re following:
Beige Book: Housing Continues to Expand.
Lenders, Title Professionals Prepare for TRID.
Most economists say no Housing Bubble.
Largest Monthly Home Price Gain in two years.
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