Giving gifts is a universal method to reveal gratitude. When it concerns monetary institutions and their lending activities, that simple gesture becomes more nuanced as the potential for compliance obstacles develops. Specifically, Section 8 of the Real Estate Settlement Procedures Act (RESPA) includes prohibitions that should be considered when wanting to keep compliance and prevent possible regulatory scrutiny.

Understanding RESPA Section 8

RESPA offers customers with improved disclosures of settlement costs and minimizes the expenses of closing by getting rid of referral costs and kickbacks.1 The legislation, initially passed in December 1974, has undergone several modifications and advancements, consisting of Section 8.

RESPA Section 8 restricts certain actions related to federally related mortgage loans.2

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

- RESPA Section 8( b) restricts unearned fee arrangements, i.e., splitting charges made or receieved for settlement services, other than for services actually performed in connection with federally associated mortgage loan deals.

- RESPA Section 8( c) identifies particular payments that are not prohibited by Section 8.


These prohibitions normally use to anyone, which RESPA defines as individuals, corporations, associations, collaborations, and trusts.

RESPA Section 8 restricts anybody from giving or accepting:

- A cost

- A kickback

- A thing of value


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

Things of Value:

- Special rates or banking terms

- Things

- Discounts

- Trips

- Money


The Challenge of RESPA Section 8

Under RESPA Section 8( a), gifts and promotions typically are "things of worth" and, therefore, could, depending on the situations, violate RESPA Section 8( a). If the presents or promos are provided or accepted, as part of an arrangement or understanding, for recommendation of service occurrence to or part of a real estate settlement service including a federally associated mortgage loan, they are forbidden. There is no exception to RESPA Section 8 entirely based on the value of the gift or promotion4.

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

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

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


Financial Institutions should comprehend the relationship within their loaning department and thoroughly analyze whether accepting or providing gifts could breach the regulation.

Compliance Risk Management Best Practices

Determining the relationship between your banks's group members and settlement company can be overwhelming. Below are useful pointers to address present providing, sponsorships, and co-marketing.

Gifts

It is essential to occasionally determine relationships currently in place; you can see who is getting and sending gifts within your company. You can ask questions like:

1. How was the list of presents and receivers picked?

2. Were presents offered to a big audience, or are the items targeted to prior and continuous referral sources?


If presents were just sent to a minimal set of settlement service providers, who also happen to be existing recommendation sources or an intentionally targeted group of future recommendation sources, this might recommend that the recipient is receiving the advertising product because of previous or future referrals. Thus, the promotional product might be conditioned on recommendations.

If a recommendation source is regularly and regularly offered with an item or consisted of in an activity, and especially if that referral source is provided with the item or consisted of in the activity more frequently than other individuals, this might 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 might have loan officers asking to work with regional real estate agents to supply academic occasions. These types of occasions ought to be analyzed on a case-by-case basis. For example:

1. A loan officer provides a request for approval. They would like to sponsor an occasion or supply 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 developments. The seminars are open to the general public and they are advertised to all of the location's real estate representatives no matter their status as recommendation sources.


These two examples could expose your organization to risk if left unchecked. The very first example might be considered a "thing of worth" due to the fact that it defrays that organizational expense. The second example might meet the definition of a "regular 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 expenses that otherwise would be sustained by persons in a position to make referrals, as they are consistently offered at no charge for everybody, not simply referral sources.

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

Co-Marketing

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

There is nothing in the RESPA guidelines that would avoid joint advertising; however, you should exercise care when reviewing these demands since a "thing of value" might be present. There are costs connected with marketing and the production of products. If marketing partners do not pay their "pro-rata share" of costs, you could have a potential infraction.

In order to comply with RESPA requirements during co-marketing, validate the marketplace worth, and the expense to produce, style, print, or release marketing materials. Maintain your marketing files to assist keep track that each participant in the advertisement has an equal share in the cost.

Financial organizations can proactively evaluate their RESPA Section 8 program to help preserve compliance and avoid potential regulatory scrutiny. This diligence will help ensure your company stays on the right side of regulations and continues to operate with integrity and openness.

Simple ways to practice this consist of creating an environment where teams can succeed with clear policies, treatments, training, and tracking lending group activities (such as gift offering and marketing) to maintain compliance with the bank's policies and regulatory requirements.

Have more questions concerning RESPA Section 8 or other compliance hot subjects? ProBank Advisor ® can use you and your compliance group on-demand access to our knowledgeable compliance specialists, who are primed to address your concerns, look over your policies, disclosures, ads, and more.