RESPA Section 8 is 12 U.S.C. 2607. Regulation X repeats it at 12 CFR 1024.14. The SAFE MLO outline lists it under both federal law and ethics, because the questions are usually short stories: someone offers a payment, and you have to decide whether the payment is for a referral or for work.
The section applies to settlement services on a federally related mortgage loan. A referral of that business is not something you can charge for, except in the narrow cases the rule itself allows.
Two bans, not one
Section 8(a) says no person may give or accept any fee, kickback, or thing of value under any agreement or understanding, written or oral, that settlement-service business will be referred to anyone. Regulation X adds a plain version of the same idea: a company may not pay another company, or another company's employees, for the referral.
Section 8(b) is different. No person may give or accept any portion, split, or percentage of a charge for a settlement service except for services actually performed. A charge for no work, or for only nominal work, or a duplicated fee, is an unearned fee. The rule does not care who hands over the money. Splitting the charge with the person who pays it does not fix the problem.
An exam item can violate (a), or (b), or both. A payment tied to sending a borrower to a title company is a referral problem even if somebody also did a little work. A fee split where nobody did the work is an unearned-fee problem even if nobody used the word "referral."
Thing of value, agreement, and referral
"Thing of value" is wide. Regulation X includes money, discounts, salaries, commissions, stock, dividends, credits to be paid later, the chance to join a money-making program, special bank terms, free or discounted services, trips, paying someone else's expenses, and rent that depends on how much business is referred. A payment does not have to be cash.
The agreement does not have to be written or even spoken. A practice or pattern can be enough. If something of value shows up over and over and is connected to the volume or value of business referred, that pattern is evidence of an agreement.
A referral includes any oral or written act that affirmatively influences someone to pick a settlement-service provider, when that person will pay for the service. It also includes requiring someone to use a particular provider.
Marketing agreements are a common disguise. The CFPB's RESPA FAQ says an agreement is prohibited when it is structured or carried out so that payments depend on the number of referrals. Paying a real estate agent "per closed loan" is the pattern to recognize.
What Section 8 still allows
The statute and Regulation X list payments that are not banned:
- A fee to an attorney for services actually rendered.
- A title company's payment to its agent for work actually done in issuing a title policy.
- A lender's payment to its agent or contractor for work actually done in making, processing, or funding a loan.
- A bona fide salary, or other real pay, for goods or facilities actually furnished or services actually performed.
- Cooperative brokerage and referral arrangements between real estate agents and brokers. Regulation X says this exemption is only for fee splits inside real estate brokerage, when everyone is acting as a real estate broker. It does not cover deals between real estate brokers and mortgage brokers.
- Normal promotion and education that is not conditioned on referrals and that does not pay expenses the referring person would otherwise pay themselves.
- An employer's payment to its own employees for referral activity.
The test of a "real service" payment is market value. If the payment has no reasonable relationship to the market value of the goods or services, the extra amount is not for work actually done, and it can be evidence of a Section 8 violation. The value of the extra business from the referral is not part of that market value. A high price, by itself, is not proof. And it does not matter that the person making the payment never raised the charge to the consumer.
When someone who can refer business is also paid for a second service, that second service has to be actual, necessary, and distinct. Regulation X uses the attorney who is also paid as a title agent: the attorney must do core title work, such as evaluating the title search, clearing underwriting objections, and issuing the policy, not merely sit in on a closing they were already attending as counsel.
Affiliated business arrangements
An affiliated business arrangement can be lawful. Section 8(c)(4) requires three things at once:
- Disclosure of the arrangement, plus a written estimate of the charge or the range of charges. In person, or in writing or by electronic media, that disclosure is due at or before the referral. On a phone referral, an abbreviated oral disclosure is due during the call, and the written disclosure is due within three business days. A lender's referral can be disclosed when the early estimates go out.
- The person being referred is not required to use that provider. The statute does not treat it as "required use" when a lender requires its own attorney, credit reporting agency, or appraiser to represent the lender's interest, or when a law firm issues title insurance as an agent in its client's transaction.
- The only thing of value coming back from the arrangement, besides the payments the section already allows, is a return on an ownership or franchise interest.
A missed affiliated-business disclosure has a limited bona fide error defense. The person must show the violation of that disclosure requirement was unintentional and happened despite procedures reasonably designed to avoid it. That defense is not a general excuse for paying a referral fee.
Penalties
Section 8(d) sets both criminal and civil exposure.
- A person who violates the section shall be fined not more than $10,000, or imprisoned for not more than one year, or both.
- Violators are jointly and severally liable to the person charged for the settlement service, for three times the amount of any charge paid for that service.
- In a private action, the court may award court costs and reasonable attorney fees to the prevailing party.
- The CFPB, the Secretary, or a state's attorney general or insurance commissioner may sue to stop violations. Where the Bureau has jurisdiction, it has primary authority to enforce this section.
Documents provided under Regulation X's Section 8 rules must be kept for five years from the date of execution.
How the questions are usually baited
Sort the story before you sort the answers. Was there an agreement to refer? Was something of value given? Was it for a service actually performed, at a level that matches the market, or was the payment tied to the referral itself? If the facts include an affiliate, check disclosure, freedom to choose another provider, and whether the return is only an ownership return.
Answers that say "it is fine because the borrower was not charged more" are wrong under Regulation X. Answers that treat a real-estate-to-mortgage referral fee as a cooperative brokerage split are also wrong. Answers that allow a flat marketing fee with no referral condition are the ones that match the promotional-activity exception, and only when the facts actually say the payment does not depend on referrals.
Practice this on MLO Pass
Section 8 items repeat the same decision with different gifts, rents, and "marketing" labels. Drill them until you can name which element of the ban is present. Start studying
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