Happy holidays from CFPB?
With the holidays falling mid-week, I had expected a quiet year end where I could put these Musings away for a bit. Director Chopra and the CFPB, however, had their own version of last-minute Christmas (parting?) gifts for the financial services industry in the form of enforcement action lawsuits filed and announced right before the holiday.[1]
Since these lawsuits don’t get randomly filed without months or maybe years of negotiations preceding them, most folks would call this awfully “grinchy” of the CFPB. On the other hand, I’m sure some competitors can experience schadenfreude[2]when the mighty are sidetracked, and few financial service litigators defending these companies might quietly view the CFPB as a bit of an evil Santa.[3] Meanwhile, this mortgage blogging lawyer just felt compelled to write about it.[4]
CFPB's RESPA complaint
Anyway, unsurprising to anyone familiar with the Levy School of RESPA Compliance’s (LSRC) narrative driven views about RESPA[5], the specifc CFPB holiday gift lawsuit that compelled this Musing was the December 23, 2024, RESPA enforcement action against Rocket Homes[6]and Realtor Jason Mitchell. CFPB alleges Rocket operated an illegal kickback scheme with Mitchell and Mitchell's real estate agents that steered homebuyers to Rocket Mortgage and Rocket’s affiliated title company.[7] The complaint accuses Rocket Homes of providing incentives to Mitchell's agents in exchange for referrals and discouraging comparison shopping, all of which CFPB claims resulted in consumers paying higher costs.[8]
Parallels with UWM Case
Essentially, CFPB contends that Rocket and Mitchell conspired to reduce consumer choice by steering consumers back to Rocket instead of shopping in the market. In my view, the CFPB’s Complaint against Rocket reads remarkably similar to the RESPA class action Complaint against UWM (minus the RICO allegations). Both cases involve considering whether formalized business relationships with referral sources create an illegal kickback scheme under RESPA. In UWM’s “sharp elbows” case the referring parties are mortgage brokers, while with Rocket they are real estate agents.[9] Given the famous feuding between Rocket and UWM, however, I have no expectation that the two independent mortgage giants will work together to promote their ironically aligned RESPA interests. But, then again, the United States worked with Russia to defeat the Nazis in WWII,[10] so such an alliance isn’t wholly unprecedented.[11]
Narrative is the RESPA ballgame
I might disappoint some of my loyal readers by not using this RESPA case to inspire another discussion about the problems with regulation by enforcement. I’m also not going to deconstruct the history and purpose of RESPA or even do law school exam-like hypotheticals about how RESPA is, in effect, a thought crime[12] to explain how narrative is the whole ballgame.
In fact, while I have no insights into whether any of the CFPB’s factual allegations are true, and none of this should be taken as legal advice, the narrative roadmap for how Rocket and Mr. Mitchell can counter the CFPB’s claims should be clear to LSRC acolytes. That is, rather than any “thing of value” exchanged for referrals, facts should support the narrative that Rocket and Mitchell were just collaborating in various ways to improve the customer experience and hold each other accountable to a high standard of customer service and seamless interaction.
Rocket is armed for bear/Mitchell sued personally
As is often noted in these Musings, CFPB’s enforcers seem to take it as a personal affront whenever someone dares challenge their interpretations or refuses to be bullied by their vast power.[13] So it is worth noting that CFPB sued Mr. Mitchell personally in addition to suing his company; reminiscent of how Townstone Mortgage’s Barry Sturner was sued personally in connection with his company’s challenge to the CFPB’s expansive fair lending interpretations.
Personally, I had never heard of Mr. Mitchell before this lawsuit, but, as for Rocket, history has shown that its leaders refuse to be cowed by the federal government when they think they are right and they are willing to go to the mat to prove it.[14] Meanwhile, only time will tell if Mitchell becomes an industry hero for fighting the CFPB on RESPA or his career and finances will be set on fire. Refusing to settle, however, thrusted Mitchell's name into the industry headlines[15] in a case not likely to go away quietly with Rocket involved. Mitchell claimed on LinkedIn that he could have settled for $200,000, so either way, the outcome was going to be expensive. But, with Rocket seemingly fully aligned with Mitchell on defending the CFPB’s RESPA claims,[16] Mitchell should be able to sustain a fair fight against CFPB.
You are special
Stepping back from the facts of this case, and, again, I’m not giving legal advice to anyone here, but even a “grinchy” CFPB would be forced to concede that, standing alone, giving a benefit to a consumer such as a discount or fabulous service is not a RESPA violation.[17] So, it must also be true that a sincere offer by a settlement service provider to a referral source to simply provide great service and fair prices to referred customers cannot be viewed as a thing of value to the referral source offered in return for those referrals. That’s just what every provider offers (should offer) to every referral source, right?
Now, I am going to let my readers (and the CFPB) in on a little secret that virtually everyone in the settlement services industry doesn’t want their referral sources to know: namely, although prohibited from offering a thing of value in return for referrals, every provider wants their referral sources to think that they and their customers will be treated as special even if the service level/pricing would really be no different for any other consumer.
The free appraisal example
For example, it is fairly common for lenders to offer customers of a particular realtor or builder a discounted or free appraisal or some other concession. But is that a benefit to the consumer or is it also a benefit to the referral source to be able to offer the discount to their clients? Often an offer like that is common in the marketplace such that it doesn’t offer the referral source a competitive advantage. Similarly, the lender may be willing to give any borrower the same discount regardless of the referral source (if asked).
My point is that, in essence, every provider wants a referring party to think they are special and have been given something valuable in return for their referrals beyond a mere thank you and similar (valueless) expressions of appreciation. Just because a referral source thinks they are being treated as special, however, doesn’t mean those referral sources have actually been given a thing of value.
Cui Bono?
As highlighted in my October 24 Musing, RESPA was designed to prevent corruption in the relationship between consumers and their advisors in the homebuying process. Paying kickbacks for referrals is one thing, but professional referral relationships built on competence, fair pricing, dependability, and trustworthiness (or just making someone feel special) simply cannot be a thing of value to the referral source of the kind RESPA views as corrupt.
Perhaps it is a corruption slippery slope from a $500 payoff to a referral source to just providing good customer service to their clients, but I don’t think so. In a post-Chevron era, however, CFPB using enforcement-based interpretations of RESPA is unlikely to prove effective as way to prevent the kinds of corrupting behaviors that are truly unfair to consumers and deserving of prohibition in the market today. I have no idea what (or who) may have influenced CFPB to pursue its concerns in this case in the manner that it has, but I hope that they (or maybe even D.O.G.E?) will sincerely look at meaningful RESPA reform and modernization in the coming months in a durable form through actual legislation and/or APA rulemaking.
[1] On December 20, 2024, the CFPB sued the operator of Zelle along with Bank of America, JPMorgan Chase, and Wells Fargo for allegedly failing to protect consumers from widespread fraud on the Zelle payment network. Then, on December 23, 2024, CFPB sued Walmart and Branch Messenger, Inc for alleged unfair and deceptive practices in forcing delivery drivers to use costly deposit accounts to receive their earnings.
[2] This is German term that describes the emotional experience of pleasure or joy derived from the misfortune of others. Regardless of the facts or outcome, if you are a cautious company leader who takes heat for being “too RESPA compliant” when “everyone else is doing it”, this is exactly the kind of enforcement action you wanted to avoid.
[3] As most know, it is an easy transposition of letters to go from Santa to Satan.
[4]I am not representing any of the defendants presently, but that is not to say that I wouldn’t take a call seeking my defense counsel. CFPB’s humbug attitude was just too compelling not to write about right away.
[5] I’m just talking about RESPA’s Section 8 anti-kickback provisions. All references in this Musing edition to RESPA refer solely to Section 8 thereof.
[6] The case only names Rocket Homes Real Estate, LLC as a defendant, but CFPB claims Rocket Mortgage and Rocket’s title affiliate received referrals from the alleged kickback arrangement.
[7] ICFPB’s Complaint did not raise any affiliated business arrangement violation claims that I saw.
[8]Note that proving that consumers paid higher costs is not essential to the CFPB’s RESPA claims because the existence of a kickback scheme violates RESPA whether consumers pay more or not. Still, CFPB knows that if there is no consumer harm identified, it is fair to ask why we need a law at all or the CFPB to bother to use its vast consumer protection enforcement resources to pursue violations? I often ask this question in connection with the LO Compensation Rule.
[9] Because Rocket Homes actually referred many consumers to Mitchell's agents, there will likely be a question about whether there was even a referral from Mitchell back to Rocket’s mortgage affiliate.
[10] Folks might argue about who is the US and who Russia in that analogy, but there is no doubt who the Nazis are.
[11]At a minimum, both parties can skip the schadenfreude.
[12]Again, RESPA does not require proof of consumer harm. See fn. #8 supra.
[13]Like fair lending, no CFPB RESPA enforcement lawsuit against a lender or realtor has ever been filed until now.
[14]As reported in Housing Wire, Rocket Homes responded to the lawsuit with the following strong statement of denial and willingness to fight, “The CFPB’s allegations are false and a distortion of reality. The accusation that homebuyers paid more when working with Rocket Homes is a lie. Additionally, the notion that Rocket Homes penalized real estate brokers or agents for helping clients compare rates and choose the best lender for them is also a lie.
“The facts are clear – data shows one third of consumers with a loan application already in progress with Rocket Mortgage, before contacting Rocket Homes, chose to close with a different lender. This proves Rocket Homes is committed to empowering homebuyers to make the best decisions for their unique needs. Rocket Homes has always focused on connecting buyers with top-performing agents based on measurable success metrics.
“Director Chopra’s transparent ploy to bolster his political agenda before the changing of administrations is a reckless and shocking misuse of public resources. This flimsy lawsuit is just the latest in a tidal wave of legal actions by a desperate Chopra hungry for headlines. Rocket Homes will not rest until these baseless allegations are fully dismissed, and the CFPB redirects its focus to real issues that genuinely impact consumers.”
[15] Most Realtors would kill for this kind of national recognition with the P.T. Barnum type hope that ‘there is such thing as bad publicity’ (especially with a deep pocketed partner like Rocket to help fund the legal costs).
[16]Again, not unlike the support Sturner was able to receive from the public interest law firm Pacific Legal Foundation.
[17] Then again, in the CFPB’s 2016 Eghbali Consent Order, however, consumers received the benefit of alleged referral fees in the form of discounted escrow fees, yet CFPB claimed it was Eghbali himself who got the thing of value because he allegedly could do more loans as a result. I don’t think CFPB offered any evidence whatsoever tying the alleged kickback to the ability to do more loans (nor did CFPB raise the same issue for Eghbali’s employer-Wells Fargo). Proving a RESPA violation based on increased business caused by a thing of value offered to consumers in return for referrals would be a tall order for in any lawsuit.
Brian Levy is an attorney with Katten & Temple, LLP licensed in Illinois and Wisconsin who writes the free Levy’s Mortgage Musings blog available at www.mortgagemusings.com. Mr. Levy can be reached by email at blevy@kattentemple.com. Mr. Levy’s blog is copyrighted and presented by Chrisman Commentary with permission. All rights are reserved.