What Will the Consumer Federal Protection Bureau Do? Part 2 of RE-Insider’s Exclusive Interview with HUD’s Brian Sullivan

RE-Insider’s exclusive interview with HUD’s Brian Sullivan continues as we explore how the new Consumer Federal Protection Bureau will be even more aggressive in pursuing RESPA violations. (Read part 1 of our exclusive interview) We’d like to know if these issues are at the top of your list for better policing and enforcing of RESPA.

According to Sullivan, among the first steps to be undertaken taken by the CFPB is the clean up of Section 8, the anti-kickbacks and referral fee provision of RESPA, and to fully define the issue of required use.

Of all the violations that RESPA covers, perhaps none is more closely scrutinized than Section 8. Much of the scrutiny revolves around the idea of required use and the different discounts and incentives that come with using affiliated businesses. Required use is defined as forcing a borrower to use a particular provider of a settlement service to have access to some distinct service or property. HUD originally proposed to make a very strict definition of the term, but ran out of time, before turning over authority to enforce RESPA to the CFPB.

Sullivan admits that Section 8 one of the most difficult violations to enforce.

“Section 8 of RESPA accounts for about 25 percent of all RESPA-related complaints,” Sullivan said. “And these kickbacks don’t come only in the form of money – it can be in the form of sports tickets, restaurant tabs, junkets – anything of value that is exchanged between one person and another merely for the referral is illegal.”

“It is a vexing issue,” Sullivan said.

Sullivan stressed that all of these regulations are to protect the buyer. Clearly, the priority for the CFPB is educating the borrower and making sure that there are no surprises.

“RESPA made it very clear that when a borrower pays money, they are paying money for a service rendered,” Sullivan added. “The act of referring one person to another is not a service that should be compensated and is a violation of RESPA.”

Needless to say, the CFPB has its hands full when it comes to RESPA enforcement. But the ambiguity of the required use provision opens it up for interpretation and makes it more difficult to prosecute. By clearly defining what constitutes required use, the CFPB will hopefully be that much more effective in stopping abuses.

What issues would you like to see the CFPB address this year?