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CFPB Enters Into Consent Order with Prospect Mortgage LCC Over RESPA Violations
Practical Law Legal Update w-005-6949 (Approx. 3 pages)
CFPB Enters Into Consent Order with Prospect Mortgage LCC Over RESPA Violations
by Practical Law Finance
| Published on 03 Feb 2017 • USA (National/Federal) |
The CFPB entered into a Consent Order with Prospect Mortgage LLC for paying kickbacks in exchange for mortgage referrals. Under the Order, Prospect Mortgage LLC is required to pay a $3.5 million civil penalty and is also prohibited from future referral payments.
On January 31, 2017, the Consumer Financial Protection Bureau (CFPB) entered into a Consent Order with Prospect Mortgage LLC (Prospect) for engaging in an illegal kickback scheme with its brokers and real estate agents for mortgage referrals. Under the Order, Prospect is required to pay a $3.5 million civil penalty.
Prospect is characterized as a "covered person" under the Consumer Financial Protection Act (CFPA), which means that it engages in offering or providing a consumer financial product or service (12 U.S.C.§ 5481(6)). The CFPB found that Prospect violated Section 8(a) of the Real Estate Settlement Procedures Act, which prohibits making payments or giving kickbacks to any person, including brokers and agents, in return for referring consumers to particular real estate settlement service providers. In particular, Prospect violated this federal consumer financial law by:
- Paying brokers a fee for each lead that was offered, typically consisting of a potential buyer’s name, address, email address and phone number, so that Prospect could reach out to the consumer and market its loan products.
- Ignoring the exclusivity provision found in its lead agreements, which prohibits a broker from sharing a potential buyer’s information with any Prospect competitor and discourages the broker from promoting another lender’s services.
- Providing incentives for real estate agents to channel buyers and sellers to Prospect’s loan officers with, in particular:
- payments of $25 to $500 per lead, depending on the time period and the type of lead; and
- fixed payments per month ranging from a few hundred dollars to over $20,000 a month.
- Encouraging brokers and real estate agents to require buyers, even those who had already prequalified with another lender, to obtain preapprovals with Prospect. A preapproval involves a potential buyer submitting an application to a lender and obtaining certification that the buyer is able to finance the transaction.
- Signing contracts with mortgage servicers with instructions to push consumers to refinance their existing mortgages with Prospect. In return, Prospect paid the servicer a portion of its proceeds from any resulting refinances.
- Subsidizing part of a real estate agent’s advertisements on third-party websites in exchange for exclusive promotion on the ads.
- Pressuring brokers to send customers to Prospect as part of the quid pro quo for receiving payments. Additionally, agents sometimes tried to economically force consumers to use Prospect’s services.
Under the Consent Order, Prospect is required to:
- Provide a $3.5 million civil penalty to the CFPB.
- Cease paying for any service connected or related in any way to receiving referrals of real estate service business. Prospect must also stop entering into any agreements that requires influencing potential home buyers to use Prospect’s services.
- Submit to the Regional Director a comprehensive compliance plan to ensure Prospect has complied with all applicable federal consumer financial laws, including:
- detailed steps for addressing each action required by the consent; and
- specific timeframes and deadlines for implementation.
- Notify the CFPB of any development that could affect its compliance obligations, including a dissolution, assignment, sale, merger, or bankruptcy, at least 30 days before the development, but in any case no later than 14 days after the development. Prospect is also required to submit a written compliance progress report within 90 days of the effective date of the order, and then again one year after the effective date.
For more information on RESPA, see Practice Note, US Consumer Regulatory Law: Overview: Disclosure-Oriented Laws: Real Estate Settlement Procedures Act (RESPA).