18.3 Permissible Services, Ownership Returns and Marketing Agreements

The Two-Prong Test for Permissible Payments

To qualify for safe harbor protection under Section 8(c), a transaction must satisfy a rigorous two-prong legal test:

• Prong 1: Actual Services Rendered: The recipient must perform actual, necessary, and distinct goods, facilities, or services that are not nominal, duplicative, or routine referral activity.
• Prong 2: Fair Market Value (FMV): The compensation paid must be reasonably related to the fair market value of the goods, facilities, or services actually provided. Excess compensation can provide evidence of a disguised referral payment; apply the actual Section 8 elements.

---

Marketing Service Agreements (MSAs) and Co-Marketing Guidance

Marketing Service Agreements (MSAs)—arrangements where a lender or title company pays a real estate broker or builder to market its settlement services—face intense regulatory scrutiny.

CFPB Guidance and Supervisory Principles

The CFPB rescinded Bulletin 2015-05 in October 2020. Apply Section 8 and the current RESPA FAQs to marketing services agreements: determine whether compensation is for actual services reasonably valued or is a disguised referral payment. Independent valuation can support the evidence but is not a universal statutory requirement to hire an outside appraiser. Retain proof of actual performance and analyze compensation and referrals together.

Joint Advertising and Co-Marketing Proportionality

When a lender and a real estate broker engage in co-marketing (e.g., joint direct-mail flyers, social media ads, co-branded websites, or open-house sponsorships):

• Strict Proportional Cost-Sharing: Each settlement service provider must pay a share of the total advertising cost that is strictly proportional to the prominence and space allocated to their business.
• If a flyer allocates 50% of its visual space to a real estate agent and 50% to a mortgage lender, an equal contribution is appropriate if the actual advertising value is equal; prominence is evidence rather than a universal exact-percentage formula of the design, printing, and distribution costs.
• If the lender pays 80% of the cost, the excess 30% payment represents a subsidized thing of value provided to the real estate agent in exchange for mortgage referrals, constituting a per se violation of RESPA Section 8(a).

---

Affiliated Business Arrangements (AfBA, 12 CFR § 1024.15)

An Affiliated Business Arrangement (AfBA) arises when a person who is in a position to refer settlement service business (or an associate of such person) has an affiliate relationship or a direct or beneficial ownership interest of more than 1% in a provider of settlement services, and directly or indirectly refers business to that provider.

The Three Statutory Conditions for Safe Harbor

Under 12 CFR § 1024.15(b), an AfBA is exempt from Section 8 kickback liability only if three cumulative conditions are met:

1. Prior Written Disclosure: The referring party must provide a written Affiliated Business Arrangement Disclosure Statement (conforming to Model Form Appendix D) to the consumer at or before the time of the referral. The disclosure must detail the business relationship, specify ownership percentages, provide an estimated charge range for the settlement services, and inform the consumer that they are not required to use the affiliated provider. (If the referral is made by telephone, the disclosure must be mailed or electronically delivered within three business days).
2. No Required Use: The referring party cannot require the consumer to use the affiliated settlement service provider. The consumer must remain completely free to shop for alternative settlement providers.
   • Sole Statutory Exception: A lender may require a borrower to pay for the services of an attorney, credit reporting agency, or real estate appraiser chosen by the lender to represent the lender's interest.
3. Return on Ownership Interest Only: The only thing of value received from the arrangement (other than permissible Section 8(c) payments for actual services) is a return on ownership interest. Returns must be based on legitimate ownership interests under the rule and can never be calibrated to referral volume.

Sham Affiliated Entities

Under HUD Statement of Policy 1996-2, regulatory agencies apply a ten-factor test to identify "sham" affiliated entities designed to disguise referral kickbacks. Indicators of a sham entity include: lack of adequate capitalization, lack of independent office space, absence of dedicated employees, work contracted back to the parent owner, and lack of active business from non-affiliated sources.

---

Penalties, Liabilities & Enforcement

RESPA Section 8 carries formidable civil and criminal enforcement mechanisms (12 U.S.C. § 2607(d)):

• Criminal Penalties: Fines of up to $10,000 and up to one year of imprisonment per violation.
• Civil Treble Damages: In private civil actions, violators are held jointly and severally liable for three times (treble damages) the total amount of any settlement service charge paid by the borrower, plus reasonable attorney's fees and court costs.
• Injunctions and Administrative Consent Orders: The CFPB, state attorneys general, and state insurance commissioners may seek permanent injunctions, customer restitution, and substantial Civil Money Penalties (CMPs) under Dodd-Frank Act Tier 1, Tier 2, and Tier 3 penalty schedules.

Marketing evidence rather than an automatic formula

The value of actual services and the referral agreement determine the analysis. A fifty-fifty illustration assumes equal advertising value; equal page space alone does not always prove equal value. An express agreement to reward referrals with a subsidy presents the Section 8 problem. Review actual performance, reasonable compensation, ownership returns and required-use exceptions rather than treating a written MSA or affiliation as automatic protection.

CFPB current RESPA FAQs.