By David N. Anthony and Nicholas R. Klaiber
A May 24, 2012, decision of the United States Supreme Court clarifies the potential scope of liability for entities providing real estate settlement services under the Real Estate Settlement Procedures Act (RESPA). In Freeman v. Quicken Loans, Inc., No. 10-1042, which is available here, the Court limited liability for charges for settlement services that are not actually performed to instances in which such charges are split between two or more entities.
The decision addresses 12 U.S.C. § 2607(b), which prohibits giving and accepting "any portion, split, or percentage of any charge made or received for the rendering of real estate settlement service . . . other than for services actually performed." Violations of this provision may lead to a recovery of three times the amount paid by the plaintiff for the settlement services. The plaintiff/petitioners in Freeman contended that Quicken Loans had charged them various loan discount fees, processing fees, and loan origination fees without receiving any such services or benefits. Quicken Loans contended that § 2607(b) only applied when the fees are split between two or more parties.
The Court ultimately agreed with Quicken Loans, holding that § 2607(b) "unambiguously covers only a settlement-service provider's splitting of a fee with one or more other persons; it cannot be understood to reach a single provider's retention of an unearned fee." Justice Scalia, who authored the opinion for a unanimous Court, focused primarily on the statute's prohibition on both giving and accepting the charges. As the Court noted, if "under this statute it is (so to speak) as accursed to give as to receive," an unearned fee from a consumer to a single provider "would make lawbreakers of consumers - the very class for whose benefit § 2607(b) was enacted[.]" Indeed, under the plaintiff/petitioners' construction, such consumers could have faced criminal prosecutions and actions for injunctive relief from state and federal regulators.
In so holding, the Court departed from a 2001 policy statement from the Department of Housing and Urban Development (HUD), which interpreted § 2607(b) "as not being limited to situations where at least two persons split or share an unearned fee." The Court noted the statement exhibited "palpable overreach with regard to price controls" that went "beyond the meaning that the statute can bear[.]" The Court characterized HUD's assurance that it was "unlikely to direct any enforcement actions against consumers for the payment of unearned fees," as "cold comfort."
The Court also disagreed with an amicus brief co-authored by the Consumer Financial Protection Bureau (CFPB), which in 2011 assumed responsibility for HUD's previous consumer protection responsibilities under RESPA. Aside from urging the Court to follow HUD's 2011 statement, the CFPB argued that because the statute sets forth penalties for the "person or persons" who violate § 2607(b), it is possible for a single entity to incur liability. The Court explained, however, that the same language applies to § 2607(a), which has always been understood to require "two culpable parties for a violation," and therefore the reference to "person" does not carry "the significance attributed to it[.]"
Troutman Sanders is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of financial services institutions, including institutions providing real estate settlement services. Attorneys from Troutman Sanders' Financial Services Litigation Practice Group have a wide range of experience representing clients facing claims under RESPA and advising clients on compliance with RESPA.
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