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District Court Gives CFPB Rare Loss on Merits by Granting Summary Judgment on RESPA Section 8 Claims

In a win for real estate settlement service providers, another federal court has rebuffed the Consumer Financial Protection Bureau’s (“CFPB”) aggressive interpretation and enforcement of Section 8 of the Real Estate Settlement Procedures Act, 12 U.S.C. §§ 2601-2617 (“RESPA”). Specifically, in Consumer Financial Protection Bureau v. Borders & Borders, PLC, the District Court for the Western District of Kentucky recently granted the defendants’ summary judgment motion and dismissed the CFPB’s RESPA Section 8(a) claims. See 2017 WL 2989183 (W.D. Ky. July 13, 2017).

The defendants were a small, family-owned law firm and its partners who performed residential real estate closings. Id. at *2. The defendants had established a number of title insurance joint ventures that were 50% owned by the defendants and 50% owned by various local real estate brokers. Id. at *2-3. The real estate brokers would refer customers to the defendants to handle the closing, and the defendants would then refer the customers to the joint ventures for title insurance. Id. at *3. The CFPB alleged that the joint ventures’ distributions to the partners constituted a kickback in violation of RESPA Section 8(a) and that the safe harbor provisions of Section 8(c)(4) did not apply because the joint ventures were not bona fide settlement service providers and because defendants failed to provide legally sufficient disclosures of the affiliated business arrangement. Id.

While the Court held that the CFPB had shown that the defendants violated RESPA Section 8(a) through the joint venture arrangement, it also held that the joint ventures fell within RESPA’s “safe harbor” for affiliated business arrangements (“ABA”) found in Section 8(c)(4). See 12 U.S.C. § 2607(c)(4). Accordingly, the Court granted summary judgment in favor of the defendants on the CFPB’s Section 8(a) claims. The Section 8(c)(4) safe harbor provides, in relevant part, that an ABA does not violate Section 8(a) if (i) the person making the referral discloses the affiliated arrangement to the customer; (ii) the customer is not required to use the affiliated entity; and (iii) the person making the referral does not receive any “thing of value” other than a “return on the ownership interest” from the affiliated arrangement. See 2017 WL 2989183, at *5; 12 U.S.C. § 2607(c)(4). The Court held that the defendants satisfied the Section 8(c)(4) safe harbor, because (i) they disclosed the ABA at the time of the referral (i.e., in this case, at the closing); (ii) customers were not required to use the joint ventures for owner’s title insurance; and (iii) the CFPB failed to demonstrate that “the distributions were something other than ownership interests.” See 2017 WL 2989183, at *5-6.

The Court did not address the CFPB’s arguments that the Section 8(c)(4) safe harbor did not apply because the joint ventures were “not bona fide ‘providers of settlement services.’” If it had, it would have likely followed binding Sixth Circuit precedent holding that the ABA safe harbor test is limited to the three elements set forth in the statute and that a policy statement imposing a fourth element (i.e., that an ABA be a “bona fide provider of settlement services”) is not entitled to deference. See Carter v. Welles-Bowen Realty, Inc., 736 F.3d 722, 726-29 (6th Cir. 2013).

The Borders & Borders decision follows the D.C. Circuit’s recent decision in PHH Corp. v. Consumer Financial Protection Bureau, 839 F.3d 1 (2016) where the Court of Appeals rejected the CFPB’s aggressive arguments to effectively eliminate another RESPA safe harbor provision under Section 8(c). The PHH Corp. decision was granted rehearing en banc and the case has been briefed, argued, and is awaiting decision. Depending on the outcome of PHH Corp. and any appeal in the Borders & Borders case, the CFPB may be forced to reign in its efforts to rewrite RESPA through aggressive enforcement.

Copyright 2020 K & L GatesNational Law Review, Volume VII, Number 205


About this Author

David Christensen, KL Gates, Financial Law and Commercial Litigation Attorney

David Christensen is a partner in the Boston office of K&L Gates and has extensive experience in complex commercial litigation. Mr. Christensen concentrates his practice in consumer finance litigation matters and is a member of the firm’s Financial Institution and Services Litigation group and the Class Action Litigation Defense group. Mr. Christensen has experience representing mortgage lenders and servicers, banks, and other financial institutions in suits involving claims under various federal and state consumer statutes, including the Truth in Lending Act, the...

Matthew N. Lowe, KL Gates, financial services litigation attorney, class action lawyer

Mr. Lowe concentrates his practice in general civil and commercial litigation matters, with an emphasis in financial services litigation and class action litigation defense. He also has experience representing clients in the areas of product liability and toxic tort defense. 

Mr. Lowe represents a variety of corporate and individual clients in federal and state courts throughout the United States, including Massachusetts, California, Maryland, New York, Virginia, Illinois, New Jersey, and Missouri. He has experience representing mortgage lenders, banks, loan servicers, and other financial institutions in suits alleging violations of various federal and state statutes, including the Real Estate Settlement Procedures Act ("RESPA"), the Equal Credit Opportunity Act (“ECOA”), the Truth in Lending Act (“TILA”), and the Fair Debt Collection Practices Act (“FDCPA”). Mr. Lowe also has experience litigating class and individual actions arising from mortgage loan modification programs, including the federal government’s Home Affordable Modification Program (“HAMP”). In addition, he has litigated cases arising under state statutory law, including state unfair and deceptive acts and practices statutes, and state common law, including contract, tort, and product liability.