CFPB Sues National Real Estate Brokerage and Referral Network Company over Alleged Kickback and Steering Scheme

Last month the CFPB filed suit in the U.S. District Court for the Eastern District of Michigan against a real estate brokerage operating a large real estate referral network that matches consumers with real estate brokerages (the “Company”), alleging that the Company engaged in a kickback scheme that required real estate agents and brokers in the Company’s network to steer clients to the Company’s mortgage lender affiliate and its affiliate providing title, escrow, and closing services, and away from competing lenders, in violation of Section 8 of RESPA.  The CFPB’s lawsuit also names as defendants several parties not affiliated with the Company but otherwise allegedly involved in the underlying activities, including a real estate brokerage holding parent company, its real estate brokerage subsidiaries, and their individual CEO (also a licensed real estate salesperson and majority owner of the holding company) (the “Real Estate Group”).

The CFPB generally alleges that the Company violated RESPA Section 8(a) (the prohibition against kickbacks) by giving things of value – i.e., the ability to continue receiving real estate referrals through the network and obtaining priority for future such referrals – to real estate brokers and agents, pursuant to an agreement or understanding that they would provide in exchange referrals of settlement service business – i.e., mortgage, title, escrow, closing – through affirmatively influencing their clients to use the Company’s mortgage lender and title company affiliates on the clients’ mortgage transactions.

The CFPB further alleges that the Real Estate Group violated RESPA Section 8(a) by accepting things of value – i.e., the above-described real estate referrals – from the Company, pursuant to an agreement or understanding that the Real Estate Group would refer settlement service business as described above to the Company’s mortgage lender and title company affiliates.  The CFPB also alleges that the Real Estate Group violated RESPA Section 8(a) by giving things of value – i.e., $250 gift cards – to their real estate agents, pursuant to an agreement or understanding that the agents would provide in exchange referrals to the Company’s mortgage lender and title company affiliates, and specifically noted the individual CEO’s control over the agents’ activities.

In its lawsuit, the CFPB makes many allegations of activity in support of its claim that the parties’ arrangement violated RESPA Section 8, including, among other things, that:

• Versions of the Company’s terms and conditions to receive referrals through the network during the time of the subject activity required participating real estate agents and brokers to “preserve and protect” their clients’ relationship with the Company’s affiliated lender (as the client’s “chosen lender,” even though many consumers allegedly had not “chosen” the affiliated lender as their lender at the time of referral), warned that steering a client away from the affiliated lender to another lender was prohibited and could result in termination of the broker’s or agent’s relationship with the Company, and generally required brokers and agents to steer their clients away from potential mortgage competitors and to the affiliated lender.
• Company network metrics gave weight to conversion rates for successful steering to the Company’s affiliated lender, such that real estate referrals went to brokers and agents with higher conversion rates.
• Real estate agents and brokers were discouraged from sharing information with consumers concerning products not offered by the Company’s affiliated lender.
• The Company pressured real estate brokerages receiving network referrals to hit a particular “capture rate” for clients getting their mortgage from the Company’s lender affiliate, and to refer to the lender both clients received through the network as well as home-grown clients (resulting in additional referrals from the Company). 
• The Company pushed for referrals to its affiliated title company, calling it the “preferred provider” to its affiliates and encouraging agents to use it for all Company clients.
• The Real Estate Group gave things of value to their real estate agents in return for referrals to the Company’s lender affiliate so that the Real Estate Group could continue to receive real estate referrals and priority for future referrals from the Company as well as selection to participate in several Company pilot programs resulting in additional referrals.

The CFPB alleges that these actions violated RESPA Section 8’s prohibition on accepting and giving things of value (including “the opportunity to participate in a money-making program” as well as referrals themselves) in exchange for referrals.  The CFPB’s lawsuit requests the court to enjoin the defendants from committing future RESPA Section 8 violations; requests redress for borrowers negatively affected by this kickback scheme; and seeks a civil money penalty.