The charges announced by the CFPB Thursday accuse Borders & Borders PLC in Louisville and its three principals of forming a network of shell companies to profit from kickbacks through real estate settlement referrals. The case was filed in the U.S. District Court for the Western District of Kentucky.
"Today's action sends a clear message that companies cannot design business structures to hide illegal kickbacks," said CFPB director Richard Cordray, in the release. "The CFPB will continue to pursue companies that seek to profit from convoluted arrangements that limit competition and hurt honest businesses."
The CFPB said Borders & Borders entered into nine joint ventures with local real estate and mortgage broker companies to act like title insurance agents when in reality the referral business provided kickbacks to the law firm and ventures. The firm's three principals—Harry Borders, John Borders Jr. and J. David Borders—are also being charged for violating the Real Estate Settlement Procedures Act. The law bans kickbacks for referrals for performing settlement services on mortgages.
"When companies pay kickbacks in exchange for referrals, it can hurt competition and inflate real estate settlement costs for consumers, while creating an uneven playing field that puts law-abiding businesses at a disadvantage," the CFPB said in the release.
The CFPB added that Borders & Borders along with its principles "received substantial fees" through this referral network. Furthermore, the nine joint ventures "were not bona fide entities" since there were no physical offices or contact information. And all of the ventures were run by an independent contractor who was an employee of the law firm.
"The companies performed no substantive title work, all of which was instead performed by the staff at Borders & Borders," the CFPB said. "The CFPB believes the entire arrangement served no significant business purpose beyond acting as a conduit for kickbacks in exchange for referrals."
The investigation was originally referred to the CFPB by the Department of Housing and Urban Development in July 2011 when the CFPB took over enforcement authority of RESPA. The agency said Borders & Borders did shut down its joint ventures after they were notified of the HUD investigation that same year. The law firm continues to offer certain settlement services.
The CFPB is asking the court to forbid the firm and its principles from engaging in such practices as well as entering into new affiliated business arrangements or restarting the title ventures. The agency is also seeking repayment for those harmed and additional relief as determined by the court.