Referral Fee to Customer Lucy Griffin, Editor Compliance Action
Question: May a bank pay a referral fee to a customer if the bank makes the loan to an applicant that the customer referred to the bank? The customer is a business that has no connection to real estate or real estate lending. As such, I don't believe they are a settlement service provider within the definition of RESPA.
Answer: This is always an interesting question. RESPA prohibits kickbacks between settlement service providers. Even though settlement service is broadly defined to include almost every service or decision involved in making a real estate loan, it does not reach beyond the connection with consumer real estate. The service, like the transaction, must be connected to the making of a loan secured by a dwelling. So, if your customer is in fact demonstrably not a settlement service provider, RESPA does not prohibit the payment of a fee or the provision of a benefit for the referral.
Having said that, there are two hefty caveats. First, you should be absolutely certain that your customer has no connection with settlement services defined by RESPA. This should include what the customer's affiliates may do.
Second, some entities interpret the anti-kickback provision to prohibit the payment or the receiving of a kickback. This interpretation means that one party alone can violate RESPA. This interpretation could be applied to a situation where only the payor - your institution - would be a settlement service provider. While most federal courts to date have not agreed with this interpretation, there is a risk that HUD or your examiner would read RESPA this way. So deciding to make such a payment is a business risk decision. Understand the risk before making the decision to go ahead.
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