CFPB Sues Nationwide Real Estate Brokerage for Alleged RESPA Section 8 Violations – RESPA is Back

Today, December 23, 2024, the CFPB (aka, the Grinch?) sued in federal district court a nationwide real estate brokerage that is affiliated with a large nationwide mortgage lender and title insurance company for alleged violations of RESPA Section 8.  The CFPB seeks disgorgement, civil money penalties, and redress to consumers, among other things.  The lawsuit essentially alleges that the nationwide real estate broker would provide referrals to local real estate brokerages (a thing of value) with the understanding that it would receive in exchange referrals of business to its affiliated lender and title company.  I will provide a more detailed description of the alleged facts below, as well as some thoughts on this lawsuit.  But I think the top line takeaway here is that, this lawsuit along with its 2023 consent order with another nationwide lender (which I wrote about here), show that the CFPB is still enforcing RESPA Section 8.  Despite the looming change in the administration, this is still an area for all in the real estate and mortgage industry to keep on their radar for potential investigations and enforcement.

The CFPB’s factual allegations in the lawsuit are as follows.  The nationwide real estate brokerage (“nationwide brokerage”) operated a referral network that would refer consumers to local real estate brokerages (“local brokerages”) throughout the country.  The nationwide brokerage’s affiliated mortgage lender (“affiliated lender”) would refer consumers seeking a preapproval letter to begin their home search to the nationwide real estate brokerage.  Recently, consumers also began contacting the nationwide brokerage directly, including through its own websites and leads it purchased from third parties.  The nationwide brokerage would match consumer from its own sources with a local real estate brokerage or specific agent.  If a referred consumer purchased a home, the local brokerage would pay a referral fee to the nationwide brokerage, which was a percentage of its commission on the transaction.

The alleged issue was that the nationwide brokerage conditioned the referrals on the local brokerages engaging in efforts to ensure the consumer used the affiliated lender and title company, and dissuading them from considering other lenders or title companies.  The nationwide brokerage wanted the local brokerages to hit a “capture rate” of 80%, meaning 80% of referred consumers would obtain a loan from the affiliated lender.  The nationwide brokerage monitored the local brokerages’ rates of loans closed with its affiliated lender, and the satisfaction rating assigned to the local brokerage by the affiliated lender’s loan officer, which it used to allocate referrals.  The nationwide brokerage included in each referral a document that warned that its affiliated lender was the consumer’s “chosen lender,” and a cover sheet instructing the local brokerage to steer the consumer to the affiliated lender, and threatened, suspended, and removed real estate agents that did not steer consumers away from other lenders.  This also included punishing real estate agents who helped consumers obtain down payment assistance from programs in which the affiliated lender did not participate.

The CFPB also alleged that the nationwide brokerage pushed the local brokerages to refer their own “home-grown” consumers to the affiliated lender.  The nationwide brokerage referred more business to local brokerages that referred their home-grown consumers to the affiliated lender, and cut referrals to those that did not.  In addition, the nationwide brokerage also encouraged local brokerages to refer business to the affiliated title company.

The CFPB’s lawsuit also included as defendants a privately held group of local brokerages around the country that received referrals from the nationwide brokerage.  The CFPB alleged that the group used assertive tactics to refer to the affiliated lender, including trying to create “a fear” in consumers that they could lose the home they wanted to buy if they used a different lender.  The group called the referrals to the affiliated lender and title company “dog bones,” and gave $250 gift cards to its top real estate agents that made the most dog bones each month, and alerted, by sending “Dog Bone Alert” emails, its own front office and the nationwide brokerage of such referrals.  In return, the group received priority referral flow, and was selected to participate in experimental pilot programs.

The CFPB alleged that the nationwide brokerage’s activity violated RESPA Section 8(a) because it gave a thing of value, i.e., the continued referral of business to the local brokerages, with the understanding that the local brokerages would refer business to its affiliated lender and title company. The CFPB also alleged that the privately held group of local brokerages violated RESPA Section 8(a) because it accepted this thing of value in exchange for the referrals to the affiliated companies.

Keep in mind that these are merely factual allegations in the CFPB’s complaint.  The CFPB is known for aggressively spinning facts in its complaints to achieve its end of winning its litigation.  These allegations could be completely bogus, and the complaint could omit important facts that would tend to disprove the CFPB’s claims.  We’ll have to wait and see how this plays out in court.

But regardless, the takeaway here for the industry is that the CFPB is once again actively enforcing RESPA Section 8, including looking at enforcing against companies other than lenders.  As I noted in my blog post on the CFPB’s previous RESPA enforcement action last year (see here), the CFPB took a long respite from RESPA after it lost the PHH lawsuit (which I wrote about here and here).  But the CFPB is back, and RESPA is definitely on the CFPB’s radar again.

While there is a looming change in administration at the CFPB, remember that last time the CFPB had a Republican-appointed head, it still had a very active enforcement docket and some very aggressive enforcement actions and legal theories.  Without any substantial reduction in force by the next administration, the CFPB’s staff doesn’t change with a change in administration, and that includes the CFPB’s supervisory and enforcement staff.  The staff can still have an effect on what the CFPB focuses on in examinations and investigations.  Also, while there has been recent talk about “deleting” the CFPB, in reality, an agency with the mission of protecting consumers would be very difficult to “delete” politically.  There has been legislation proposed to kill the agency in nearly every Congress since the CFPB’s creation, and it has never passed.  I think the CFPB is likely here to stay.  And despite a new head of the agency next year, there is still the potential for supervisory actions and enforcement in this area.  RESPA Section 8 is an area in which a new director could find smaller companies to hit with public enforcement actions, which could help avoid bad press about a lack of enforcement actions, and not create the fierce political blowback that the CFPB’s past aggressive legal theories have received.  And with that cover, a new head of the agency could focus on bigger ticket items that would garner political praise, such as rescinding or amending the aggressive midnight rulemakings the CFPB has been promulgating, or even updating old HUD guidance regarding RESPA.  In addition, state agencies have been enforcing RESPA Section 8 recently, so there is always the prospect of facing a state action. The message here is that your organization should continue focusing on RESPA compliance, including reviewing the alleged facts in this lawsuit, because RESPA enforcement does not appear to be going away any time soon.

The CFPB’s press release is here.

Please email me at rich@garrishorn.com if you would like to discuss any of the issues in this blog post.