Don't Oversimplify MSA Compliance Issues

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I have heard many in the industry make the comment that marketing agreements are illegal. With all due respect, as is often the case with blanket, absolute, oversimplified statements, that is simply wrong. The reality is that marketing agreements can be and often are perfectly legal. If negotiated, implemented, audited, and maintained correctly, marketing agreements are explicitly permissible. Of course, if MSAs are created for the purpose of circumventing the Real Estate Settlement Procedures Act’s Section 8 kickback laws, then of course they violate the law much as any other sham transaction.

Indeed, following the Consumer Financial Protection Bureau’s consent decree last week with Chase and Wells Fargo, I heard a chorus of lenders lamenting over whether they should discontinue their MSAs. Of course, the Wells case did not involve an MSA. Rather it involved what the CFPB referred to as a Marketing Services Scheme, allegedly designed for the purpose of providing free marketing to lenders in exchange for the referral of title business. The case did not involve a legitimate marketing services agreement that was declared unlawful. In fact, when one studies the facts of that case, it is apparent no meaningful comparison can be drawn between an arguably lawful MSA and the alleged allegations involved in the Wells consent decree.

Another myth is that the laws and regulations make it impossible to predict when an MSA relationship exceeds permissible boundaries. While there is some truth in this point, the fact is that MSAs are hardly the only area where the boundary lines are unclear. Again, as in any other context, lenders can decide how much risk they are willing to tolerate and adapt their MSA relationships accordingly, much as they do in other areas, such as loan officer compensation.

So the ultimate question is whether there is any such thing as a “safe” MSA. The answer, unequivocally, is yes. Nonexclusive MSAs that involve reasonable compensation for legitimate services, that do not change and are not based on the volume of referrals, and that are audited to ensure the services are performed are lawful.