With all the troubling news coming out of Washington for lenders these days, the U.S. Supreme Court delivered a much-needed win to the industry last week. In Freeman v. Quicken Loans, the U.S. Supreme Court held that no cause of action existed under RESPA for a lender’s retention of a marked up fee.
RESPA, which prohibits the payment of unearned referral fees and/or the sharing of settlement services fees, has been used by plaintiffs’ attorneys to attack lenders for overcharging the cost of third-party settlement services. The Supreme Court ruled, however, that as long as the fee was not paid to or shared with another entity, no cause of action existed under the statute against the lender. In other words, if a lender marked up the cost of a settlement service and kept the excess, there was no violation of RESPA as long as that excess amount was not paid to or shared with another party. This decision will likely bring to a halt countless cases against lenders for overcharging for credit reports and/or non-bona fide discount points charged to borrowers under RESPA.
Notwithstanding this development, lenders should not start reconfiguring fees to borrowers. Various state laws and certainly Dodd Frank’s prohibition of unfair and deceptive practices still pose considerable risk to lenders for fees charged to borrowers that are not bona fide or not accurately disclosed. Of course, since Dodd Frank’s prohibitions cannot apply retroactively, the statute will not save pending claims against lenders for conduct prior to the law’s passage (again, do not forget state law.)
While on the discussion of RESPA referrals, employers are often confused about internal referral fees. The Code of Federal Regulations, specifically 24 CFR 3500.14, explicitly states that RESPA does not prohibit “a payment by an employer to its own bona fide employee for generating business for that employer.” Hence, internal bonuses for employees’ referrals of business are permissible under RESPA, even if the employee does not process or originate the loan.
