Let’s Get Some RESPA….
The Real Estate Settlement Procedures Act, (RESPA) was passed by Congress in 1974 (when I was just a toddler and many of you were not even thought of). The goal was to provide consumers with some protections from bad actors that had a role in their home purchase transaction, including disclosures of the settlement costs associated with their closing. The act intended to ensure consumers that there was nothing sneaky going on behind the scenes such as kickbacks or over charging for fees and services.
RESPA (Regulation X), was originally assigned to Housing and Urban Development (HUD) who handled rule-making and oversight until the Consumer Financial Protection Bureau took it over in 2011. Well, I can say that this law is packed with lots of legalese and one could go deep down a rabbit hole, but you all know, that is not how I roll, so in true “The Bottom Line” spirit, we are going to cut to the chase.
Now, I’m not a lawyer (nor do I play one on TV), I am however a strong believer in brand protection for companies and consumer protection for the people because when it gets down to it, we are all consumers. These days, you have to keep up with the speed of the game, but you also have to understand the laws that impact your business. Everyone has a WIIFM (What’s in it for me?), but you have to be mindful of potential pitfalls that can arise as a result of trying to drum up business. Compliance departments must work closely with marketing and other consumer-facing business areas to avoid potential violations.
Section 8 clearly speaks to the importance of not giving or receiving a thing of value (kickbacks).
8(a) Outlines the rules around referral fees which prohibit, amongst other things, giving or accepting fees for the referral of settlement service business. (Gift cards, getaways and “a little bit of this in exchange for a lot of that” is not allowed. If you do a good job, people will want to work with you, if you encounter someone that expects a quid pro quo, be okay with walking…better yet, running away!).
8(b) Prohibits giving and receiving any portion of a settlement service unless the fee is for services actually provided and the fees are disclosed. (Don’t play games with the moolah! Simply put, you can’t charge for services that were not rendered). Consumers: This is where you need to pay attention to the fees on your Good Faith Estimate.
8(c) Speaks to the practices that are exempt from the prohibitions. (That’s the stuff that is okay)
Finally, there is the Affiliate Business Arrangement Exception that requires disclosure of the arrangement and an estimate of the charges. It is important to remember that the consumer has the right to choose a different provider. (Your peeps, may not be my peeps and that’s okay!).
The Bottom Line....
The bottom line is that people work hard to get to the closing of their loan and the last thing that they want to see is a 11th hour surprise! Violations of Section 8 are subject to criminal and civil penalties including fines and imprisonment and I personally am going to jail for NO ONE! If you are a compliance department, you owe it to your team, your company, and your consumers to always be monitoring for potential RESPA violations and to stay on top of any updates to the RESPA disclosure requirements. Just another opportunity for you to be the super hero for your company’s compliance program!
Until next time, be safe and if you have anything you would like my take on, don’t hesitate to drop me a line!