CFPB contends that law firm’s profit distributions from title companies are illegal “kickbacks” under RESPA

The Consumer Financial Protection Bureau (CFPB) brought an action against a law firm alleging the firm violated section 12 U.S.C. §2607(a) of RESPA prohibiting the giving or receiving of any fee, kickback, or thing of value, when it allegedly received kickbacks masked as profit distributions from title companies in which it had a fifty percent ownership interest. Consumer Financial Protection Bureau v. Borders & Borders, PLC, 3:13-CV-1047-JGH (W.D. Ky. Feb. 12, 2015). The CFPB charged with enforcing violations of federal consumer financial laws, including RESPA, believes the law firm’s process of referring its client-borrowers to the law firm’s jointly owned title companies; then performing the substantive title work on behalf of those title companies; then, on top of significant fees for closing services, receiving profit distributions from those title companies based on profits generated entirely by the law firm’s referrals, is illegal. Without necessarily disputing the CFPB’s factual assertions, the firm brought a motion for judgment on the pleadings on the grounds that its conduct was legal and within the bounds of RESPA. The firm’s argument hinged on §2607(c)(4), a narrow exception for referral fees to providers of settlement services, commonly known as RESPA’s safe harbor provision. Under §2607(c)(4), a referral to providers of settlement services is legal so long as the referral is made to an affiliated business arrangement ABA which comports with three statutory elements: (1) disclosure at the time of referral; (2) referred customer may reject the referral; and (3) the thing of value must be a return on ownership interest or franchise relationship. The firm maintained it could satisfy each element as the title companies were valid ABAs; the required disclosures were given; and any money derived from the ABAs was simply a return on ownership. Convinced that it could prove otherwise, the CFPB argued that discovery would show that not only could the firm not satisfy the statutory elements for safe harbor, but that profit distributions were really just an elaborate gimmick to provide cover for illegal kickbacks exchanged for referrals. Because the court must accept the [CFPB’s] well-pled allegations as true and the motion may be granted only if the moving party is nevertheless clearly entitled to judgment, the court concluded that at this stage, it must draw its inference in favor of the non-moving party. [T]he CFPB has pled enough factually to make this impermissible scheme more than merely possible and therefore the motion was denied.

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