Our mortgage loan origination system (LOS) provider’s online application portal now includes a link that consumers can use to request a quote from a property insurance broker on behalf of multiple carriers not affiliated with the bank. If the consumer accepts an insurance offer, the necessary information can be sent directly to the loan portal. Our LOS provider and the property insurance broker contracted to have this feature embedded into the LOS system; our bank did not request it.
The LOS provider has provided assurances that this arrangement does not violate RESPA Section 8, which prohibits fees or kickbacks in exchange for referrals and the payment of unearned fees in connection with real estate settlement services and related loan transactions. The LOS provider states that there is no violation of RESPA Section 8 because all parties pay fair market value for services actually performed, no “thing of value” is provided to the bank in exchange for a referral of property insurance business, and this arrangement benefits the consumer by facilitating the process of shopping for insurance.
Q In addition to discussing this with our primary regulator, what additional measures might we consider to mitigate the risks of a RESPA Section 8 or other legal violation?
A Based on the facts provided, the bank does not appear to be in violation of RESPA Section 8 as it is not giving or accepting any unearned fee, kickback or other thing of value in connection with this arrangement. However, to further mitigate potential legal concerns, the bank should consider taking the following actions:
- Discuss with the LOS provider whether the bank might simply decline to offer this solicitation opportunity and have this link removed;
- Develop disclosures that explain to the consumer the optional nature of this referral opportunity and the relationships of the parties involved;
- Ensure that strong vendor management protocols exist, including a thorough review for any RESPA Section 8 issues, and that the contract between the LOS provider and bank is structured in a manner that addresses RESPA compliance. For example, the bank should ensure it does not benefit—or “receive a thing of value”—in connection with the contract between the LOS provider and the insurance broker to embed the broker’s link in the LOS; and
- In addition to these legal considerations, the bank should also assess whether it is comfortable, from a reputational standpoint, in referring business to the insurance broker, and carriers in turn, and potentially to other settlement service providers if the LOS provider were to expand these types of partnerships.
For more information, contact ABA’s Terry Hollinger.
Please note that this section is not a substitute for professional legal advice.
