VIDEO: RESPA Section 8 Gifts & Promotions
In this Compliance Clip (video), Adam explains the answer to the question on whether or not gifts and promotions are allowed under RESPA Section 8. While having kickbacks and unearned fees is definitely prohibited, Adam gives some examples on how it may happen to mortgage lenders.
Video Transcript
The following is a transcript of this video:
This Compliance Clip is going to talk about gifts and promotions under RESPA Section 8. This is a RESPA mortgage question. The question that we often see is “Are gifts and promotions allowed under RESPA Section 8?”
The answer of course is going to come from RESPA, which is implemented by Regulation X, but it also can come from RESPA Frequently Asked Question number one under the Gifts and Promotions Activity section.
Let's first talk about the Regulation X requirement under 1024.13(b). There is a prohibition, of course, for kickbacks and unearned fees and 1024.13(b) says this. It says, “No referral fees. No person shall give and no person shall accept any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to, or part of a settlement service involving a federally related mortgage loan shall be referred to any person.” Essentially what this is saying is anytime you have a federally related mortgage loan, if you're a bank or any lender doing mortgage loans, this most likely applies to you. We're talking about mortgage loans and mortgage loans referral. What it says is you cannot have any kickback or unearned fee. They also go on to say any other thing of value, and that's a very broad term. Other things of value could be almost anything.
Let's go on and take a look at what the frequently asked question under RESPA Section 8(a) says. It says, “Gifts and promotions generally are considered to be things of value and therefore could, depending on the circumstances, violate RESPA Section 8(a).” It also goes on to say, “If the gifts or promotions are given or accepted as part of an agreement or understanding for referral of business incident to or part of a real estate settlement service involving a federally related mortgage loan, they are prohibited.” Of course, you can see in the frequently asked question they are referencing back to Regulation X of the CFPB’s rule under 1024 that we saw here on the prior slide. What they're talking about is having unearned fees and kickbacks, and typically it's going to be under an agreement or not just a formal agreement, but it could be an understanding based on your pattern or practice.
Also from the Frequently Asked Question, they gave us an example. They say, “For example, if a settlement service provider gives current or potential referral sources, tickets to attend professional sporting events, trips, restaurant meals, or sponsorship of events, or the opportunity to win any of these items in a drawing or contest in exchange for referrals.” That's the key, there's an exchange for referrals, “as part of an agreement or understanding, such conduct violates RESPA Section 8.” So if you are giving things of value to people who bring you business or the expectation that they will bring you business, that is going to be a problem under RESPA Section 8. If we look at 1024.14(e), we see that it says that such an agreement or understanding does not need to be written or oral, and it can be established by a pattern, practice or course of conduct. So your end results are what is going to be reviewed, not what you have written or what you said, but the end results are, what are going to be reviewed when determining if there's a pattern or practice for providing things of value.
There's a couple other considerations to discuss here. First of all, there is no exception to RESPA 8 solely based on the value of the gift or promotion. Even if it's just a couple of pennies, the value is only 50 cents or a couple of dollars, that doesn't matter. Thing of value is anything of value, which would be pretty much anything at all.
They do say, “Accordingly, some of its service providers should carefully analyze whether providing gifts or opportunities to win prizes to referral sources could violate the prohibitions under RESPA Section 8.” If you're trying to do a contest to drum up business, you really need to make sure you're looking at RESPA Section 8 to make sure you don't have some sort of gift or promotion that violates the prohibition of kickbacks and unearned fees.
Also, I do want to point out that under 1024.14(g)(1)(vi), it does say that in certain circumstances, gifts and promotions don't violate RESPA Section 8. These certain circumstances are typically one of two things. Number one would be your normal promotional activities. Number two then is educational activities. So educational activities would be putting on a general seminar and if a title company happened to come in, even though you're providing it to the public, then it wouldn't necessarily violate RESPA Section 8, unless there was some sort of understanding based on the facts and circumstances. The other piece is normal promotional activity. If you're providing pens at a trade show to anybody who walks by and just so happens that somebody gives you referrals, comes by and picks up a pen with your logo on it, that's going to be a normal promotional activity. That exception is there, but you have to steer clear and be very careful when you're dealing with any type of thing of value that's going to somebody who provides you settlement services for real estate loans.
That's all I have for you today on this Compliance Clip.