The FDIC examiners identified significant consumer compliance issues during its supervisory activities in 2022 according to its March 2023 issue. The Spring 2021 issue of the Consumer Compliance Supervisory Highlights discussed Real Estate Settlement Procedures Act “RESPA” Section 8(a) violations and the difference between paying for a lead (which is generally acceptable) and paying for a referral (which is prohibited). True leads permissible under RESPA are often lists of customer contacts that are not conditioned on the number of closed transactions resulting from the leads, or any other consideration, such as endorsement of the settlement service. While a service may be characterized as a lead generation service, the activity could actually be a referral arrangement depending on the facts and circumstances. If the payment for the lead is in exchange for activity directed to a person that has the effect of affirmatively influencing the consumer to select a particular lender, then it becomes a referral fee. Banks often contract with third parties to provide what are characterized as lead generation services, but in some cases, the FDIC has found that the banks are actually paying for referrals. While the FDIC Supervisory Highlights demonstrate what banking regulators are looking at, it provides a good roadmap for other settlement service providers who are engaging in these types of marketing efforts.
In 2022, the FDIC identified RESPA Section 8(a) violations where a bank contracted with third parties that took steps to identify and contact consumers in order to directly steer and affirmatively influence the consumer’s selection of the bank as the settlement service provider. In some cases, this process involved the third party calling identified consumers and directly connecting and introducing them to a specific mortgage representative on the phone. This process is often referred to as a “warm transfer.” In other cases, the process involved operation of a digital platform that purported to rank lender options based on neutral criteria but where the participating lenders merely rotated in the top spot. Although each case is fact specific, indicators of risk in these arrangements include a third party that does one or more of the following activities: