Oct 13

Recent Compliance Issues: 9/19/14 – 10/02/14

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1. On September 30, 2014, the Consumer Financial Protection Bureau (CFPB) ordered Michigan insurance agency Lighthouse Title to pay $200,000 for illegal real estate settlement referral agreements sending a clear and simple message that quid-pro-quo agreements for real estate referrals are illegal.

One of CFPB’s missions is to ensure that the mortgage market is a level playing field where everyone plays by the rules. The Bureau found that Lighthouse Title violated the Real Estate Settlement Procedures Act (RESPA) which prohibits, among other things, providing something of value (“kickback”) to any person with an agreement (or even an understanding) that the person will refer real estate settlement services.

Lighthouse Title entered into marketing services agreements (MSA’s) with various companies, including brokers, with the understanding that the companies would refer mortgage closings and title insurance business to Lighthouse. The CFPB said that the agreements made it appear as if the payments would be based on marketing services the companies were supposed to provide to Lighthouse.

However, Lighthouse was setting the fees it would pay under the MSAs by also considering the number of referrals it received or expected to receive from each company. Our staff of former bank regulators have seen these types of arrangements at a number of banks.

It is important to have your arrangements with third party service providers reviewed by knowledgeable people to avoid inadvertent violations of RESPA experts. Contact us to arrange a review of your real estate settlement procedures.

 

2. U.S. Bank will pay $57 million in consumer relief and penalties for unfairly charging more than 420,000 customers for identity protection and credit-monitoring services they never received.

The Minneapolis-based bank sold such services as add-on products for credit cards and other bank products, according to a consent order issued by the Consumer Financial Protection Bureau (CFPB). The programs, administered by a third-party vendor, required written authorization from customers before the services could begin.

Although that authorization in many cases was delayed or not processed properly, the CFPB said customers were billed for the protection as soon as they enrolled. As a result, customers were charged fees, in some cases for several years, for services they never received.

The charges in some cases caused customers to exceed their credit card account limits, which triggered additional fees. Also, customers mistakenly may have believed their credit was being monitored for identity theft and fraud, but those services were either not performed or only partially in place.

The bank agreed to pay $48 million in relief to customers who paid the improper charges. Additionally, the bank will pay a $5 million penalty to the CFPB and a $4 million penalty to the U.S. Office of the Comptroller of the Currency. The CFPB has consistently warned banks about practices related to add-on products and announced that it will be focusing on other credit products such as auto loans for this same reason.

Don’t get caught in such arrangements at your bank.

Allow our former bank regulators to review your lending practices to ensure your bank is not conducting activity that could incur stiff penalties.