The CFPB Rescinds Its 2015 MSA Bulletin

Vague and confusing guidance regarding marketing service agreements has been officially withdrawn.

Five years ago, a cloud of regulatory uncertainty fell over Marketing Services Agreements (MSAs) when former Consumer Financial Protection Bureau (CFPB) Director Richard Cordray expressed his opinion in a 2015 MSA Bulletin that any settlement service arrangement anticipating future referrals posed “substantial risks” under the Real Estate Settlement Procedures Act (RESPA). The guidance was vague and confusing, but one thing was clear—the CFPB believed that MSAs were inherently illegal, and you had to prove that yours was not.

For all practical purposes, the 2015 MSA Bulletin was overturned in 2018 when the United States Court of Appeals for the District of Columbia Circuit rejected this restrictive interpretation of RESPA under a separate set of facts in the case of CFPB v. PHH Corp. Now it’s official. On October 7, one day before its five-year anniversary, the CFPB rescinded the MSA Bulletin as not providing the regulatory clarity needed on how to comply with RESPA. In the same blog post, it publish Frequently Asked Questions (FAQs) addressing MSAs and other referral fee issues under RESPA.

Part I of this series summarizes the MSA guidance provided in the CFPB’s new RESPA FAQs. Part II will summarize the FAQs related to gifts and promotional activities under RESPA.

MSAs Are Legal if Done Properly

Unlike the 2015 MSA Bulletin, the new FAQs make it clear that MSAs are not inherently illegal under RESPA:

“Entering into, performing services under, and making payments under MSAs are not, by themselves, prohibited acts under RESPA or Regulation X.”

The FAQs emphasize that an analysis of any MSA under RESPA depends on the facts and circumstances, and how it’s both structured and implemented. But if the MSA “reflects an agreement for the payment for bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed, the MSA or the conduct is not prohibited.”

This last statement (and the new FAQs) essentially bring back to the forefront the basic guidelines long set forth in the RESPA statute and regulations.

  • Payments must comply with Sections 8(a) of RESPA, which prohibits kickbacks made in connection with real estate settlement services.
  • Section 8(c)(2) sets forth an exemption for bona fide payments for “services actually performed.”
  • HUD, RESPA’s former regulator, considered payments to be bona fide when they are reasonably related to the market value of the service provided.
  • RESPA regulations further state that the payment must be for services that are “actual, necessary and distinct” from the primary services provided by the person in a real estate transaction who receives the payment, and HUD separately issued policy statements to clarify which mortgage origination and title services are considered to be “actual, necessary and distinct.”
The Flip Side: MSAs Are Illegal if Not Done Properly

The FAQs state that an MSA can be unlawful if the facts and circumstances show that the MSA—as structured or implemented in form or substance—involves:

  • Payments for referrals instead of marketing. The FAQs distinguish a referral from marketing by saying that a referral includes a written or oral action directed to a person that affirmatively influences his/her selection, whereas “a marketing service is not directed to a person; rather it is generally targeted at a wide audience. For example, placing advertisements for a settlement service provider in widely circulated media (e.g., a newspaper, a trade publication or a website) is a marketing service.”
  • Payments in excess of the reason-able market value for the services performed.
  • Payments for services that are nominal or duplicative of the primary services provided by the person receiving the payment.
  • The disguise of a payment for kickbacks or split charges. 

The CFPB emphasized in its announcement that MSAs remain subject to scrutiny, and that it remains committed to vigorous enforcement of Section 8 of RESPA. Other federal and state laws may also have restrictions that apply and should be consulted.  

But the CFPB’s rescission of its 2015 MSA Bulletin confirms what the D.C. Circuit Court of Appeals had ruled in 2018: RESPA allows you to pay for actual, necessary and distinct services—even if from a referral source—as long as you pay no more than the reasonable value of the services.

Sue Johnson is the former executive director of RESPRO, the Real Estate Services Providers Council Inc. She retired in 2015 and is now a strategic alliance consultant.