The Consumer Financial Protection Bureau (CFPB) is actively seeking enforcement actions against Marketing Service Agreement (MSA) participants.
Their latest enforcement action occurred last week against Lighthouse Title, a Michigan title company, resulting in a $200,000 civil penalty, forcing Lighthouse Title to cancel all existing MSAs and prohibiting them from entering into future MSAs.
If your brokerage currently participates in MSAs, your broker would be well served to carefully review the findings issued by the CFPB in this order.
Perhaps the most weighted finding by the CFPB stated that Lighthouse Title violated federal law by entering into MSAs with the understanding that, in exchange, the brokerages would refer closings and title insurance business to the title company and, further, by paying those brokerages fees with the understanding that in exchange the brokerages would refer business.
It’s important to note that the CFPB didn’t state that the “understanding” to refer business had to be in the written agreement.
One of the key factors to identifying an “understanding for the referral of business” was a determination that brokerages referred significantly more transactions to the title company when they had an MSA with the title company than when they did not.
Why else would a title company enter into an MSA and pay fees to a brokerage if not for the referral of business? Otherwise, the title company would simply hire a marketing/advertising firm to “market” its services — right?
By its ruling and findings, the CFPB is effectively saying that if MSAs are premised on an understanding that the brokerage will refer business to the paying title company, then the MSA is in violation of federal law.