Article By: Ben Giumarra, Spillane Consulting Associates
Here’s what you need to know about avoiding RESPA Section 8 anti-kickback violations when sponsoring a party for real estate agents or other referral partners.
The industry has adopted more conservative stances towards RESPA Section 8 anti-kickback concerns since the CFPB came in and ramped up enforcement in this area. But just as some of those decisions may have been over-conservative despite an active CFPB, some activities may remain too aggressive even under what we expect might be a more relaxed enforcement attitude. Of course, the CFPB isn’t the only organization capable of enforcing this rule – state and other Federal agencies may very well continue what the CFPB has started, even if the CFPB itself changes direction.
RESPA Section 8 prohibits giving any “thing of value” (does not have to be cold hard cash) in exchange for the referral of mortgage-related business (this agreement can be express or implied). So what if I want to host an event for a group of real estate agents (or other referral partners, like divorce attorneys, accountants, builders, etc.)? If this benefits them, does this alone mean I’m in trouble? No. If you’re in the mortgage business, you can- and probably should- be hosting such events. But here are some thoughts on how you can do this without getting yourself or your company into hot water…
Let’s Have a Party!
Here’s the situation. You’re planning a Christmas party to celebrate this past year’s success and as a thank you to everyone who contributed to it. Naturally, you’re going to invite real estate agents and other people you do business with. There will be food, drinks, a raffle, music, etc. You are considering holding it at a nice restaurant. The problem is that you also invited your compliance guy, from Spillane Consulting, and he’s bringing his date, an aid for Senator Elizabeth Warren.
Now you’re thinking … is this okay?? Well … it depends. It can be! But you’re definitely providing “things of value” to people who refer mortgage business to you, so we at least have to think about avoiding RESPA concerns.
Two Ways to Be Safe Here
#1 – Normal Promotional Activities”
The first way to be safe here is if you can classify this event as a “normal promotional activity” that does “not involve the defray of expenses that otherwise would be incurred by” attendees. This is a protective provision from RESPA that says such activities cannot be illegal kickbacks, so the fact that you’re giving “things of value” to referral partners isn’t a problem.
How can you qualify this party as “normal promotional activities”? Hint: Inviting only people who actually referred you loans, giving out Rolex watches as party favors, and holding a raffle with a $5,000 value where attendees receive one ticket for every referral from the past year, is not going to count as “normal promotional activities.” Similarly, paying for a group of real estate agents to attend a party that you’re paying for but where there is no one representing your company (i.e. no one to promote your company) won’t cut it either.
Here are some ideas instead that actually would help:
Distribute informational brochures about your company
Give a presentation on the products/services you plan to offer for next year.
Have the party well attended by representatives from your company
Avoiding offering things such as CE credits that attendees would have had to pay for by themselves otherwise (don’t defray expenses)
It’s kind of a pain to have to “watch our backs” for later updates to the demographic data. It would certainly be preferable to just “lock” the demographic data as of the time of application and forget about it.
#2 – No Agreement to Refer (Express or Implied)
OK. So there also can’t be a RESPA Section 8 violation unless an “agreement” to exchange a kickback for referral can be shown. The problem is in proving that there isn’t some form of implied agreement in certain cases. Imagine if you give your top referral partners Superbowl tickets – Can you demonstrate that this wasn’t in expectation for referrals? Maybe prove that you’re just really really good friends?
But there are some steps you can take to demonstrate that there is no improper agreement in place. One idea is to simply invite more people! Don’t limit invitations to referral partners – opening the party up to everyone in the real estate community would be safer, removing the requirement that they referred a certain number of loans to you in the past year. Now, you don’t necessarily need to take this to the absolute extreme – but definitely want to avoid invitations that say “Anyone who has referred more than 5 mortgage loans to us is invited.” Just avoid referencing referrals and related things altogether!
In Other News
This American Bankers article gives good insight into how the CFPB regime change will impact the industry (one takeaway – one person’s opinion that HMDA implementation delay is unlikely).
Good article to review: FCC targets fraudulent robocalls with new call blocking rules
Rarely regret checking out Stratmor’s monthly mortgage banking tip, like this past one on How Are Borrowers Using Online Reviews?.with helpful information such as “64 percent of borrowers are reading online reviews before making a financing decision.”
On My Mind …
Many will argue- myself included- that prioritizing other people’s interests over your own is, counter-intuitively, probably the best way to advance your own interests. And that’s especially true in this industry as I know it to be, where decent and kind people value long-term relationships over short-term gains.
But if you agree with me, do you ever find yourself describing a scenario as “win-win”? According to the The Go-Giver by Bob Burg and David Mann, that you may be losing sight of your goal to selflessly help
Don’t keep track. That’s not networking – that’s poker. You know how people say ‘win-win’? …. [M]ost of the time, what people call ‘win-win’ is really just a disguised way of keeping track. Making sure we all come out even, that nobody gets the advantage. Even-Steven. I scratched your back, so now you owe me. … When you base your relationships – in business or anywhere else in your life – on who owes who what, that’s not being a friend. That’s being a creditor.
And that’s one thing I admire so much about our industry – time and again someone will help me in some meaningful way with absolutely zero interest in their own interests, or in finding a “win-win” arrangement. It’s still a little uncomfortable for me because I don’t think I’m helping others as much as they’re helping me … but hopefully with all this support I’ll be around plenty long enough to do something about it. 🙂
– Yuval Noah Harari, in Sapiens: A Brief History of Humankind
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