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Loans and Kickbacks
Question: Our bank is losing a lot of loans to other lenders that give dealers a certain percentage back on all loans they refer to them. It sounds like a kickback of sorts however I am sure it must be legal, because they are doing it. We would like to do the same thing in order for us to compete.
Answer: If the loans are secured by residential real estate (1-4 family dwellings) the situations described violate RESPA's Section 8 prohibits against kickbacks. The only circumstances for which payments are permissible is to compensate the party for work that was actually performed. Unless the dealers who receive payments from the named lenders performed at least five settlement services (preparing application, arranging for appraisal, compiling verifications, etc.) the fee cannot be paid and cannot be accepted. If the loans are for non-dwelling purposes, such as car loans, RESPA would not be an issue. In those circumstances, the kickback is allowed.
Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 2, 3/04
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