Read Between the CFPB's Lines for Marketing Services Guidance
Recently, the Consumer Financial Protection Bureau fined Prospect Mortgage for violations of Section 8 of the Real Estate Settlement Procedures Act. The initial reaction by many is to point to this case as additional evidence of the dangers of, and reasons to avoid, co-marketing and marketing services agreements.
I see it differently: Notice what the CFPB did not say. Rather than determine that MSAs, lead agreements or co-marketing agreements were simply illegal, the CFPB found only certain behaviors illegal. Moreover, with all due respect to the respondents, the alleged activities are of the sort that it is not surprising that the CFPB took action. Indeed, while few would object to paying for leads, in this case the actual real estate agents — not merely the brokers — received dollars under the lead fee payments from brokers to actually steer customers to the lender. Hence, the CFPB is effectively alleging that the lead agreement was merely a vehicle to disguise actual payments to real estate agents for steering borrowers.
With respect to the MSAs at issue in the Prospect case, the CFPB alleges that payments were reduced or discontinued, not on the basis of what services were provided, but rather based upon the capture rate of business from referrals. If true, this is a cardinal compliance sin which would predictably result in enforcement action. A similar defect was alleged with respect to desk agreements. The CFPB says these desk rentals were valued based on referrals rather than market value of the space — a fatal flaw to any such agreement.
The point is that companies engaged in various marketing efforts should not look at this latest action as an indicator that such arrangements are doomed. Rather, these enforcement actions underscore the fact that there is no substitute for a common sense application of principles that can be drawn from prior enforcement actions, agency guidance and a general understanding of the regulatory and legislative intent behind the rules. Using such tools, it is not earth-shaking that the alleged activities resulted in an enforcement action. As such, those pointing to this case as further evidence that MSAs are not safe are misguided because what Prospect engaged in need not — should not — be part of any compliant marketing arrangement.
Ari Karen is a partner at Offit Kurman, and the CEO of Strategic Compliance Partners.