The Consumer Finance Protection Bureau details the rules on gifts and promotions so you can avoid violations.
Are gifts and promotions allowed under Section 8 of RESPA? It depends, said the Consumer Financial Protection Bureau (CFPB) in the Real Estate Settlement Providers Act (RESPA) Frequently Asked Questions (FAQs) published on October 7.
The FAQs were released in the same CFPB blog post that rescinded its controversial 2015 Marketing Services Agreement (MSA) Bulletin for not providing the regulatory clarity needed on how to comply with RESPA. They address Section 8 of RESPA, MSAs, and gifts and promotional arrangements.
Part I of this series, published in the November REAL Trends Newsletter, summarized the MSA guidance provided in the CFPB’s new RESPA FAQs. Part II, below, summarizes the FAQs related to gifts and promotional activities involving “referral sources,” such as real estate agents or loan officers.
The FAQs say that Section 8(a) of RESPA generally prohibits gifts and promotions if they are given or accepted as part of an agreement or understanding for the referral of settlement service business. They emphasize that no exception to this rule exists for gifts or promotions below a certain value, such as tickets to sporting events, restaurant meals or the opportunity to win prizes in a drawing or contest. The agreement or understanding need not be written or oral and can be established by a practice, pattern or course of conduct.
There is one notable exception from this general prohibition for normal promotional and educational activities, which are allowed under two conditions:
1. The activities are not conditioned on the referral of business. To determine whether this first condition is met, the CFPB will look to:
Whether the gift or activity (such as a real estate seminar) is targeted narrowly towards prior, ongoing or future referral sources or whether it is provided to a broader set of recipients, such as the general public or all referral sources offering similar services in a given locality.
Whether the referral source is routinely and frequently provided with the item or included in an activity—and if that referral source is provided with the item or included in the activity more than other persons.
2. The activity does not involve defraying expenses that otherwise would be incurred by the referral source. For example, if a settlement service provider pays for a real estate agent’s office supplies branded with the real estate agent’s name, contact information or logo, the payment would likely be considered to defray the real estate agent’s expenses—but, if the office supplies feature the settlement service provider’s name, contact information or logo, the payment would less likely be considered to defray expenses since it is unlikely that the real estate agent would use their own funds to purchase office supplies featuring the name and information of another entity.
The FAQs emphasize that whether an activity is a normal promotional and educational activity depends on the particular facts and circumstances. They provide examples of how an activity such as a prize drawing or the offering of a seminar to real estate agents can be a compliant normal promotional or educational activity under one set of fact patterns, and a prohibited activity under a slightly different set of facts.
While the FAQs don’t cover all possible scenarios involving gifts and promotions, it’s encouraging that the CFPB has, for the first time, attempted to provide RESPA guidance that is consistent with longstanding HUD interpretations.
As always, anyone who routinely provides (or receives) gifts and promotions or is developing promotional programs should consult with reputable RESPA counsel and be aware of state laws that may have their own restrictions.
Sue Johnson is the former executive director of RESPRO, the Real Estate Services Providers Council Inc. She retired in 2015 and is now a strategic alliance consultant.
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