Giving presents is a universal way to reveal appreciation. When it concerns financial institutions and their financing activities, that simple gesture ends up being more nuanced as the capacity for compliance difficulties arises. Specifically, Section 8 of the Real Estate Settlement Procedures Act (RESPA) consists of prohibitions that ought to be considered when looking to maintain compliance and prevent prospective regulatory examination.

Understanding RESPA Section 8

RESPA offers consumers with enhanced disclosures of settlement expenses and lowers the costs of closing by getting rid of referral fees and kickbacks.1 The legislation, at first passed in December 1974, has undergone a number of modifications and developments, including Section 8.

RESPA Section 8 prohibits specific actions connected with federally associated mortgage loans.2

- RESPA Section 8( a) forbids kickbacks for business recommendations associated with or part of settlement services involving federally associated mortage loans.

- RESPA Section 8( b) forbids unearned charge plans, i.e., splitting charges made or receieved for settlement services, other than for services actually performed in connection with federally associated mortgage loan transactions.

- RESPA Section 8( c) determines certain payments that are not prohibited by Section 8.


These prohibitions typically use to anybody, which RESPA defines as people, corporations, associations, partnerships, and trusts.

RESPA Section 8 forbids any person from offering or accepting:

- A charge

- A kickback

- A thing of worth


pursuant to an arrangement or understanding (oral or otherwise), for recommendations of company occurrence to or part of a settlement service including a federally related mortgage loan. A "thing of worth" is broadly defined in RESPA and Regulation X. 3 It can include:

Things of Value:

- Special rates or banking terms

- Things

- Discounts

- Trips

- Money


The Challenge of RESPA Section 8

Under RESPA Section 8( a), presents and promos typically are "things of worth" and, therefore, could, depending upon the circumstances, violate RESPA Section 8( a). If the presents or promos are given or accepted, as part of an agreement or understanding, for referral of service incident to or part of a property settlement service involving a federally associated mortgage loan, they are prohibited. There is no exception to RESPA Section 8 exclusively based upon the worth of the present or promotion4.

Regulation X permits "typical advertising and academic activities" directed to a recommendation source if the activities satisfy 2 conditions5:

- The activities are not conditioned on referral of business; and

- The activities do not involve settling expenses that otherwise would be sustained by the recommendation source.


Financial Institutions must understand the relationship within their loaning department and carefully examine whether accepting or providing gifts could break the guideline.

Compliance Risk Management Best Practices

Determining the relationship between your banks's team members and settlement service suppliers can be overwhelming. Below are valuable ideas to resolve present offering, sponsorships, and co-marketing.

Gifts

It's crucial to regularly identify relationships presently in location; you can see who is getting and sending gifts within your company. You can ask concerns like:

1. How was the list of gifts and receivers chosen?

2. Were presents provided to a big audience, or are the products targeted to prior and ongoing referral sources?


If presents were just sent to a minimal set of settlement provider, who also take place to be existing recommendation sources or an intentionally targeted group of future recommendation sources, this may suggest that the recipient is receiving the marketing item since of previous or future referrals. Thus, the marketing product might be conditioned on recommendations.

If a recommendation source is routinely and regularly offered with a product or consisted of in an activity, and particularly if that recommendation source is provided with the product or included in the activity more often than other persons, this could suggest the item, or activity is conditioned on referrals.

Sponsorship

As you prepare for 2025 activities, check in with your prepare for sponsoring educational occasions and luncheons. You may have loan officers asking to work with local real estate agents to offer instructional events. These types of events should be examined on a case-by-case basis. For example:

1. A loan officer presents an ask for approval. They wish to sponsor an occasion or provide the lunch, on behalf of a company that offers services to federally related mortgage loans.

2. Your organization regularly hosts complimentary workshops on recent property market advancements. The workshops are open to the general public and they are advertised to all of the location's realty agents regardless of their status as recommendation sources.


These two examples could expose your company to run the risk of if left uncontrolled. The very first example might be thought about a "thing of value" since it settles that organizational cost. The second example may satisfy the meaning of a "normal advertising and academic activity" under Regulation X, since 1) admission to the courses are not conditioned on referrals, and 2) the courses are not defraying expenditures that otherwise would be incurred by persons in a position to make recommendations, as they are consistently supplied at no charge for everybody, not simply recommendation sources.

Document your efforts and conversations to help guarantee all activities are examined with RESPA Section 8 in mind.

Co-Marketing

Marketing efforts can often bring multiple departments together. For instance, providing teams might want to partner with settlement service companies, which is covered under RESPA Section 8.

There is nothing in the RESPA guidelines that would prevent joint advertising; nevertheless, you should exercise caution when reviewing these demands due to the fact that a "thing of value" could be present. There are expenses associated with marketing and the development of materials. If promoting partners do not pay their "pro-rata share" of expenses, you might have a prospective offense.

In order to abide by RESPA requirements throughout co-marketing, validate the marketplace value, and the cost to develop, design, print, or release marketing products. Maintain your marketing files to assist keep track that each participant in the ad has an equivalent share in the cost.

Banks can proactively review their RESPA Section 8 program to assist keep compliance and prevent potential regulative analysis. This diligence will assist guarantee your company remains on the best side of policies and continues to operate with integrity and openness.

Simple ways to practice this include creating an environment where groups can succeed with clear policies, procedures, training, and tracking financing group activities (such as present giving and advertising) to maintain compliance with the bank's policies and regulative requirements.

Have more questions regarding RESPA Section 8 or other compliance hot subjects? ProBank Advisor ® can provide you and your compliance group on-demand access to our skilled compliance experts, who are primed to answer your questions, examine your policies, disclosures, advertisements, and more.