CFPB penalizes Lender on kickbacks & referrals

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While we wait for the it to put forth a final rule on Lender & Borrower paid compensation, the CFPB is reportedly looking at how financial product and service providers advertise to consumers. As part of the review, the CFPB said it found direct marketing happened most often through internet display and search (44%), direct mail (22%), direct response TV advertising (16%), direct response print ads (8%) and social networking (4%). Banks should review how they advertise through these and other channels to ensure they don't get sidewise with regulators given this focus.

 Many organizations consider the time after Christmas, and before the New Year, as a period of....shall we say, minimal productivity? At the very least a time to use vacation days accrued, instead of sitting at your desk wondering if those Christmas cookies from the investor care package sitting in the break room are still good. Apparently the CFPB is on a different calendar. On December 30, the agency posted to the Federal Register (that would be our nations BLOG) a notice adjusting the thresholds of the asset-size exemptions for collecting HMDA data and establishing an escrow account for certain mortgage loans under TILA. Ballard Spahr writes, "Pursuant to Regulation C, which implements HMDA, depository institutions with assets below an annually adjusted threshold are exempt from HMDA data collection requirements. In its notice, the CFPB increased the 2013 threshold of $42 million to $43 million for 2014. Thus, depository institutions with assets of $43 million or less as of December 31, 2013 will be exempt from collecting HMDA data in 2014."  Also, as many know Reg Z requires creditors to establish an escrow account to pay property taxes and insurance premiums for certain first-lien higher-priced mortgages. The rule contains an exemption for creditors that operate predominantly in rural or underserved areas that meet certain other criteria, including an annually adjusted asset-size threshold. In its release, the CFPB increased the 2013 threshold from $2 billion to $2.028 billion for 2014.

 

But we're not done with the CFPB. Late last week it ordered a Missouri mortgage lender, Fidelity Mortgage Corporation, and its former owner and current president, Mark Figert, to pay $81,076 for funneling illegal kickbacks to a bank in exchange for real estate referrals. According to the Consent Order, the lender had entered into an agreement with a bank in which the bank referred borrowers to the lender in exchange for kickbacks disguised as payments made by the lender for renting office space within the bank. The Order states that during the relevant period, the principal had "managerial responsibility for [the lender] and materially participated in the conduct of its affairs," thereby making him a "related person" for purposes of Dodd-Frank Title 10.  The bank was not named as a target.

 

Compliance folks know that the Section 8 kickback prohibition allows payments for good or facilities actually furnished or services actually performed. The Consent Order references a 1996 HUD policy statement that discussed this provision in the context of office rentals. The policy statement indicated that in determining whether rent payments were disguised referral fees, HUD would look at the general market value of the rental property, not its value to a settlement service provider. According to the Consent Order, the average monthly rent paid by the mortgage lender to the bank was substantially more than monthly rents for comparable space not located within a bank. But hey, don't take my word for it: StayAwayFromKickbacks.