MSAs: Good business, bad business or risky business?

The gray area surrounding marketing service agreements (MSAs) may have become a bit less murky.

MSAs are controversial because in some instances, brokers and agents are being paid for services that are not being provided. These types of arrangements have long been viewed as either prohibited kickbacks or unlawful fee splitting, both of which are prohibited by the Real Estate Settlement Procedures Act (RESPA). The Consumer Financial Protection Bureau (CFPB), which enforces RESPA, strives for consumers to have transparency for their transactions, allowing them to find the best fit for their situation.

Recently, Wells Fargo announced they were ending MSAs with agents, most likely due to a fine they received last year for being in a non-compliant MSA, said Brett Woodburn, attorney at Caldwell & Kearns, P.C.

According to Bloomberg Business, the CFPB called Wells Fargo’s move “an important step for the industry toward ensuring compliance with RESPA.”

This is the first time the CFPB has publicly stated their views on MSAs in an official capacity, said Woodburn.

“I don’t think the CFPB can take the global position that MSAs are unlawful under RESPA; RESPA allows payments for services that are necessary, distinct and actually performed, ” said Woodburn. “The problem comes from unfair, deceptive, or abusive acts and practices (UDAAP), as written into Dodd- Frank Act. Unfair, deceptive and abusive are concepts that are undefined, or underdefined, leaving interpretation and enforcement to the CFPB. The CFPB’s interpretations seem to vary on a transaction-by-transaction basis,” added Woodburn.

Woodburn pointed out that Realtors® exercise a certain level of influence over the consumer, and use that influence to help consumers make decisions about what service providers to use in a given instance. Sometimes the Realtor® has a relationship with the service provider, whether through an affiliated business or as part of a MSA.

“Stating that MSAs ‘undermine transparency for consumers’ sounds eerily similar to defining MSAs as a practice that is likely – in the aggregate – to cause consumers to pay more money than they might otherwise pay because the relationship formed by the MSA, on the one hand makes the decision-making process for the consumer easier; however, on the other hand, it can be argued that the MSA limits the pool from which the consumer can choose. As a result, the consumer’s ability to effectively choose is reduced,” said Woodburn.

“Under UDAAP, it does not matter if the consumer is benefitted by the MSA because the consumer is limited in the ability to understand the nuances of the MSA relationships, and they rely on the Realtor® who is giving them guidance,” Woodburn stated.

While he wouldn’t advise completely ending MSAs, he does warn Realtors® to make sure they have all bases covered.

“I encourage them to sit down with counsel who is well-versed in RESPA, the positions that the United States Department of Housing and Urban Development (HUD) took when HUD was responsible for RESPA, and the position that the CFPB is taking with RESPA. Tie it together,” he advised, “and make well-informed decisions.”