A Consent Decree filed last week by the Consumer Financial Protection Bureau involving a small Missouri lender is yet another wake-up call about the CFPB’s willingness to go after small lenders. It also illustrates its focus on the intent of marketing agreements, as opposed to their form, in enforcing Section 8 of the Real Estate Settlement Procedures Act.

A consent decree filed last week requires a local lender to pay an $81,000 fine, three times the origination fees charged to the 20 consumers who were solicited through the lender’s office lease relationship with a local community bank. In concluding the office lease relationship was merely a kickback, the CFPB focused on e-mail communications in which the office lease was negotiated as well as the fact that the rent payments changed and were substantially in excess of fair market value.

Some may dismiss this settlement due to its small size and the somewhat obvious nature of the kickback. However, the small size of the settlement is more alarming because it shows the CFPB’s willingness to examine small lenders. Moreover, the size of the fine reflects the relative insignificance of the money earned. What is more important is the fact that the total settlement was three times the lender’s earnings from the lease agreement, and imposed the penalty personally upon the lender’s president. Of course, this monetary figure does not consider the likely business fall-out that will impact the lender in regard to future recruitment of loan officers, advertising, and referral relationships. The figure also does not count the likelihood of follow-up lawsuits, and the lenders’ legal fees. As is usually the case, the full economic impact of this settlement far exceeds the amount set forth in the consent decree.  

Many lenders continue to operate under the premise that they are “too small” or that well-written agreements can shield a referral arrangement from regulatory action. If anything this case represents that such a mindset is misplaced. Indeed, in a statement released last week by the CFPB, it stated “[w]hen 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.” This rationale and the CFPB’s actions should put all on notice that “staying under the radar” is not as easy as being small or crafting a good-from-far but far-from-good marketing arrangement.