Marketing Services Agreement in the United States
There is a prohibition on kickbacks and referral fees under the Real Estate Settlement Procedures Act (RESPA) (12 U.S.C. 2601, et seq.), which is related to the substantial risks posed by entering into marketing services agreements (MSAs). The consumer protection authorities have received numerous inquiries and whistleblower tips from industry participants describing the harm that can stem from the use of marketing services agreements, but has not received similar input suggesting the use of those agreements benefits either consumers or industry. Based on the consumer protection authorities’ investigative efforts, it appears that many marketing services agreements are designed to evade Real Estate Settlement Procedures Act’s prohibition on the payment and acceptance of kickbacks and referral fees.
Overview of the Real Estate Settlement Procedures Act
The U.S. Congress enacted the Real Estate Settlement Procedures Act in 1974 as a response to abuses in the real estate settlement process.
Thus, a primary purpose of Real Estate Settlement Procedures Act is to “eliminat[e] … kickbacks or referral fees that tend to increase unnecessarily the costs of settlement services.” 12 U.S.C. 2601(b)(2). The statute, which has both civil and criminal penalties, covers myriad settlement services, including “any service provided in connection with a real estate settlement,” such as title searches, examinations, and insurance; services rendered by an attorney; document preparation; property surveys; rendering of credit reports or appraisals; inspections; services rendered by a real estate agent or broker; and loan origination, processing, and underwriting. 12 U.S.C. 2602(3), 12 U.S.C. 2607(d) (penalty provision); see also 12 C.F.R. 1024.2(b).
Section 8(a) of the Real Estate Settlement Procedures Act prohibits the giving and accepting of “any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” 12 U.S.C. 2607(a); see also 12 C.F.R. 1024.14(b). Section 8(c)(2) states that “[n]othing in this section shall be construed as prohibiting . . . the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.” 12 U.S.C. 2607(c)(2); see also 12 C.F.R. 1024.14(g).
Marketing Services Agreements
Marketing services agreements often involve providers of settlement services in a mortgage loan transaction, such as a lender, real estate agent or broker, or a title company. HUD issued an interpretive rule addressing the issue of real estate brokers or agents providing marketing services for home warranty companies. See Real Estate Settlement Procedures Act (RESPA): Home Warranty Companies’ Payments to Real Estate Brokers and Agents, 75 FR 36271 (June 25, 2010); 75 FR 74620 (Dec. 1, 2010) (response to public comments).
They may also involve third parties who are not settlement services providers, such as membership organizations. Marketing services agreements are usually framed as
payments for advertising or promotional services, but in some cases the payments are actually
disguised compensation for referrals.
Illegal kickbacks and referral fees, including those disguised by marketing services agreements, present compliance risks not just for the individuals who are directly involved in the impermissible conduct, but also for the companies that employ them.