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From Banking and Finance Law Daily, November 1, 2013

CFPB weighs in on evidence issues in RESPA kickback violations

By Katalina M. Bianco, J.D.

The Consumer Financial Protection Bureau filed an amicus curiae brief in the Ninth Circuit in a case that concerns the types of evidence a private plaintiff must put forward to prove that a defendant paid for a referral in violation of the Real Estate Settlement Procedures Act and Regulation X (12 CFR1024) (Edwards v. The First American Corp.).

Statement of facts. On June 12, 2007, plaintiff-appellant Edwards filed a class action complaint against defendants-appellees The First American Corporation and First American Title Insurance Company (First American). Edwards alleged that First American violated RESPA section 8 by “paying large sums of money to individual title agencies . . . in exchange for exclusive referral agreements which funnel all of the companies’ business” to First American. Specifically, Edwards alleged that First American had “paid a kickback” to Tower City Title Agency, LLC, the settlement agent that Edwards used for her real estate closing, in exchange for “an agency agreement providing that Tower City would exclusively refer all title insurance underwriting to First American Title.”

Edwards alleged that First American had engaged in similar transactions with other title agencies, whereby First American would require the title agency in which it was acquiring an ownership interest to enter into a referral agreement with First American.

Edwards sought certification of a nationwide class consisting of consumers who used the services of a title agency affiliated with First American. (Edwards v. The First Am. Corp., C.D. Cal. 2007).

District court holdings. In an order denying class certification, the District Court for the Central District of California made two determinations about the evidence that a private plaintiff needs to offer to demonstrate a violation of RESPA’s ban on paying for referrals of real estate settlement services. First, the district court held that, when a referral agreement is entered into as part of a transaction involving the sale of ownership interests, a plaintiff must show that the defendant overpaid for those ownership interests in order to prove that the defendant paid for referrals. Second, the district court held that when a plaintiff receives multiple referrals to the same settlement provider, the plaintiff must prove that the unlawful referral was the one that influenced the plaintiff’s decision to select that provider.

CFPB arguments. The CFPB argues that neither of the district court holdings is consistent with the language or purpose of RESPA or its implementing regulation, Regulation X. The CFPB asserts that the district court believed that proof of overpayment was required because payments for goods, services, and facilities generally are permitted by RESPA and Regulation X. However, according to the bureau, the safe harbor does not apply when payments are made to purchase ownership interests in an entity, nor does it permit parties to enter into agreements to circumvent the general prohibition on referral payments. The district court therefore erred in requiring proof of overpayment, the bureau charged.

The CFPB also argued that RESPA does not require a plaintiff receiving multiple referrals to prove that the unlawful referral was the influential one. Rather, under RESPA, in a private action both liability and the amount of damages are fixed once an unlawful referral is made. The district court’s contrary view, which is based on a misreading of the definition of “referral” in Regulation X, “fails to vindicate Congress’s overarching goal of rooting out paid referrals from the settlement services industry,” according to the bureau.

The case number is No 2:07-cv-03796-SJO-FFM.

Companies: The First American Corporation; First American Title Insurance Company

MainStory: TopStory CaliforniaNews CFPB CrimesOffenses

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