RESPA Update: Quicken’s Loan Fees Do Not Violate Federal Rules

In a unanimous decision published yesterday, the Supreme Court ruled in Freeman, et al. v. Quicken Loans, Inc., that Quicken Loans did not violate the Real Estate Settlement Procedures Act (RESPA) when it charged what plaintiffs considered to be “unearned” settlement service charges.

RESPA rules bar unearned fees when they are split between two or more parties, but federal regulators have long sought to apply the prohibition to all such charges in real estate transactions.

The Court’s ruling is a particular setback for the Consumer Financial Protection Bureau, the agency responsible for enforcing RESPA. In an amicus brief filed on behalf of the borrowers, the CFPB urged the Court to expand the scope of the RESPA rule:

“There is no plausible policy rationale for immunizing a settlement services provider’s acceptance of an unearned mark-up, or a fee for a service that has not been provided, simply because the provider keeps the entire fee for itself rather than sharing it with another culpable party.”

For your reference, an early look at the SCOTUS decision from lawyers and law firms on JD Supra (we’ll continue to update this list as additional commentary comes in):

Fee Split Required for RESPA Violation, U.S. Supreme Court Rules (Ballard Spahr LLP)

“The Court’s opinion in Freeman, et al. v. Quicken Loans, Inc., by Justice Antonin Scalia, holds that RESPA Section 8(b) prohibits a service provider from charging an unearned fee if the provider shares the fee with at least one other party, but not if the provider retains the entire fee. Section 8(b) states that no person shall give or accept ‘any portion, split, or percentage of’ a charge for a real estate settlement service except for services actually performed. The plaintiffs in Freeman had alleged that ‘loan discount fees” paid to the lender were unearned because they did not result in a lower interest rate and a ‘loan origination fee’ paid to the lender was also unearned because it was duplicative of the lender’s ‘loan processing fee.’” Read the update>>

Supreme Court Curtails Effort to Expand RESPA (Morrison & Foerster LLP)

“Class action lawyers had long sought to establish that Section 8(b) of RESPA allowed them to challenge closing cost charges—often pejoratively labeled “junk fees”—as simply excessive. They spoke publicly about this issue as a “Holy Grail,” because such claims would be unaccompanied by any statutory or regulatory guidelines, allowing litigation to be brought in virtually any home loan transaction. Indeed, Quicken and the industry amici took pains to point out that such a result would be the worst of all worlds, given that Congress consciously decided against a rate setting and rate regulation scheme in enacting RESPA, choosing instead to require advance disclosure of the charges at issue.” Read the update>>

U.S. Supreme Court RESPA decision stands as a warning to the CFPB (Ballard Spahr LLP)

The decision in Freeman is, therefore, of much greater importance than simply eliminating an overreading of §8(b) of RESPA. It stands strongly for the proposition that the CFPB’s interpretation of statutes will be judged against the plain language of those statutes, and that the Court will not give deference to an interpretation not supported by that plain language. Moreover, the Court’s rejection of the arguments advanced by the Bureau in its amicus brief will hopefully encourage lower courts to look on other CFPB amicus briefs with a similarly critical eye.” Read the update>>

Supreme Court Unanimously Rules Fee Split Required for RESPA Violation to the Relief of the Mortgage and Real Estate Industries (Saul Ewing LLP)

“The purpose of RESPA is to prohibit certain abusive practices such as kickbacks and fee splitting among multiple parties where no settlement services were performed by a party receiving a portion of the split fee, and not to provide customers with the power to regulate the charges issued by settlement-service providers. Luckily for the mortgage and real estate industries, the Supreme Court saw through Petitioners’ interpretation of the statute and instead, with its ruling in Freeman, has provided a sense of relief to these industries so that they may continue to charge their customary fees without the fear of being faced with allegations of a RESPA violation.” Read the update>>

Resolving the Split on Split Fees Under RESPA: Freeman v. Quicken Loans Holds That Fee-Splitting Is Prohibited Only if the Fee Actually Is Split (Schnader Harrison Segal & Lewis LLP)

“While Freeman resolves the circuit split as to whether Section 8(b) prohibits undivided unearned fees, there is a related circuit split that Freeman does not explicitly address. The Second, Third and Eleventh Circuits have held that Section 8(b) prohibits a settlement-service provider from ‘marking up’ a third party’s charge for a settlement service if it provides no additional services to the borrower to justify the markup. The Fourth, Seventh and Eighth Circuits have held that such markups are not prohibited.” Read the update>>

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