The Consumer Financial Protection Bureau (“CFPB”) recently entered into a consent order with Meridian Title Corporation (“Meridian”) for alleged violations of the Real Estate Settlement Procedures Act (“RESPA”) based on Meridian’s alleged failure to disclose an affiliated business arrangement with a title insurance underwriter. See In the Matter of Meridian Title Corp., 2017-CFPB-0019 (Sept. 27, 2017). According to the consent order, Meridian is a settlement agent and title insurance agency that issues title insurance policies and conducts loan closings. Among its other tasks, it receives orders for title insurance policies from consumers and assigns them to a variety of title insurance underwriters, including Arsenal Insurance Corporation (“Arsenal”). Arsenal has three individual owners, all of whom are also owners of Meridian. Despite this overlap, Meridian did not disclose the relationship to consumers. Accordingly, Meridian “was able in some cases to deviate from its contractual terms and to keep money beyond the commission allowance outlined in its agency contract when issuing Arsenal title insurance policies. These additional amounts that fell outside the contractually-outlined commission structure were not reasonable compensation for services actually performed in the issuance of Arsenal’s title insurance policies, nor were they a return on an ownership interest or franchise relationship.”
Under RESPA, a person shall not receive a fee, kickback, or thing of value in exchange for any referral. 12 U.S.C. 2607. Nonetheless, RESPA provides a safe harbor for affiliated business arrangements when the settlement service provider discloses the arrangement, does not require that the consumer use the affiliated entity, and receives only a return on ownership interest or reasonable compensation for services actually performed in exchange for the referral. Here, the CFPB found that Meridian did not disclose the arrangement to consumers and, accordingly, did not meet the three-part safe harbor test and violated RESPA. Due to the CFPB’s findings, Meridian agreed to pay a penalty of $1.25 million and submit to additional monitoring from the CFPB. Although Meridian consented to the penalties and the issuance of the order, it did not admit or deny any of the factual or legal conclusions made by the CFPB.