On January 22, 2015, the Consumer Federal Protection Bureau (CFPB) took action against JP Morgan CHASE, Wells Fargo, Genuine Title and two former Wells Fargo employees for involvement in an illegal kickback scheme for referrals. The combined fines were over $35 million. Receiving “a thing of value” for steering title orders is illegal and the CFPB is on the prowl for offenders.
Don’t rely on formal agreements or even ownership documents from your title partner as iron-clad defenses any longer. There are few, if any, safe business scenarios for accepting payments from title providers. Considering only the headlines of late, you might think that just lenders and title companies are under fire. Even if you refer business to a title company in which you have a financial ownership you could be operating in dangerous waters. Carefully review the two quotes below from an article taken off the CFPB’s own website and you’ll see that things are changing.
“Today we took action against two of the nation’s largest banks, Wells Fargo and JPMorgan Chase, for illegal mortgage kickbacks,” … “These banks allowed their loan officers to focus on their own illegal financial gain rather than on treating consumers fairly. Our action today to address these practices should serve as a warning for all those in the mortgage market.”
–Richard Cordray, CFPB Director
“Homeowners were steered toward this title company, not because they were the best or most affordable, but because they were providing kickbacks to loan officers who referred consumers to them,” … “This type of quid pro quo arrangement is illegal, and it’s unfair to other businesses that play by the rules.”
–Brian Frosh, Maryland Attorney General
Consider what both men say and not just who they are talking about. Richard’s comments make the connection that elevating your own personal financial gain above that of the consumer’s is treating the client unfairly, which it certainly is. His remarks are specifically directed at steering business towards a company that rewards you financially instead of referring to a company that may be better qualified or more affordable for the consumer in which you receive no financial benefit.
Hundreds of orders are referred everyday by agents who have an interest in the title venture to which they aggressively refer. It is likely at some point in the future title arrangements beyond just marketing agreements will be investigated. Imagine yourself in front of the CFPB being asked the following questions: Why that title company? Who benefits more you or the client? By using your referral company did the client miss out on added value from a competitor? Did the client know they could choose another vendor?
The CFPB is well staffed, they have vast resources and considerable legal authority to punish. They are most certainly continuing their efforts in prosecuting those involved in referral payouts. Given these remarks, it appears the lens thru which the CFPB views illegitimacy with regard to title/real estate referrals is ever widening. All parties participating in any title referral arrangement, whether it is a marketing agreement, affiliated business or joint venture agency will come under increased scrutiny in the coming months. Even if you believe your agreement or affiliated business structure is bullet proof, the risks of continuing it are enormous.
Link to the entire article: