On October, 11, 2016, the U.S. Court of Appeals for the D.C. Circuit issued an opinion in the case of PHH v. CFPB. In this case, the court vacated a $109 million penalty imposed by the Consumer Financial Protection Bureau (CFPB) against PHH Corporation for allegedly violating the Real Estate Settlement Procedures Act (RESPA) by paying for referrals where there is federally related mortgage.
The court held in favor of PHH, stating that payments for bona fide services provided and made at fair market value do not violate RESPA, reinforcing NAR’s support of marketing service agreements. The court held the CFPB’s unreasonable departure from longstanding prior RESPA interpretations issued by the Department of Housing and Urban Development (HUD) and retroactive application of its novel interpretation of the law violated PHH’s due process rights. The court also called into question the legal authority and unchecked power of the CFPB and rejected the CFPB’s understanding of their essentially unlimited statute of limitations authority, remanding the case for further proceedings.
Industry greatly welcomes this decision by the court. The CFPB, however, will almost certainly appeal the case, either en banc to the full bench of the D.C. Circuit or directly to the Supreme Court. Last year, NAR filed an amicus brief in support of PHH, arguing that the CFPB incorrectly and retroactively overturned settled legal interpretations of RESPA. The court’s opinion is consistent with NAR’s position, and also concludes that the CFPB’s action violated PHH’s due process rights, and that some of the alleged violations are well outside the applicable statute of limitations.
While the CFPB will likely continue enforcement actions with respect to payments tied directly to referrals, its efforts to challenge payments for services provided as disguised referral fees will be stymied in the near future. Real estate professionals must still proceed with caution when entering into MSAs and ensure compliance with RESPA – that payment for goods and services actually furnished or performed are made at fair (“reasonable”) market value. Best practices for these agreements include memorializing the MSA in writing, insuring that bona fide services are provided, disclosing the relationship to the consumer, and obtaining independent valuations of the marketing and advertising services.
See President Tom Salomone's statement on the case.
For a brief overview of the case, see NAR's Issue Summary.
Read the full opinion here.
For best practices on marketing service agreements, see NAR’s RESPA Do’s for MSAs.
For more background on the case, view NAR’s Window to the Law analysis.