One of the largest nationwide banks in our area sent a letter to their customer (our employee) asking for referrals of friends interested in purchase or refi mortgages. Enclosed was a "Refferal Coupon" that entitled them to a $50 gift certificate to the restaurant of their choice upon the loan closing. Our marketing department thought it was a good idea and if this big national bank could do it, why can't we? Am I wrong in thinking this would be a violation of Sect. 8, as well as possibly Reg P?

I say you're reading RESPA the right way.

Usually, when Marketing comes to my cube all sweaty and panting, with their latest / greatest idea to increase our net income, the last answer I want to give them is a flat 'no'. Much better to say 'you can't do it like that, but have you thought about this approach?'

In this case, all I've got is 'no'. You just can't pay someone for referral of a single settlement service. That big nationwide bank is using both barrels - one aimed at their own foot, and the other at their customer's head.

Here is a copy of a post I made earlier this month.

Although a little long, this is a good read on work performed and services rendered which could justify fees. Look down to "II. RESPA Policy Statement 1999-1" and "C".

The statement addesses Brokers, but it is clear that work has to be done to earn a fee.

Try contacting the CO at the bank that did the mailing. Were they aware, why do they think it is right, or is this a "too big to fail" scenario?

{Just because I saw someone doing 90 down the highway doesn't mean it is right, or that I could do it too. Or to quote Tommy and Dick Smothers:
Dick: Tommy, if your friend told you to jump off a cliff, would you do that?
Tommy: Not again!}

Andy-This is a too big to fail situation, similar to the one we can all thank Reg P for. The mortgage office wouldn't give me the phone number of their Compliance Dept. I talked to the branch manager who said he was unaware of the letter and coupon, but thanked me for the heads up. He asked me to fax it to him and he would let me know the outcome. I still haven't heard back. I think it's a case of a rogue lender who is trying to drum up business, probably not used to working in a regulated bank.

The "smart" marketer who thought this one up forgot to check the definitions. They were probably thinking that a customer/borrower isn't a settlement service provider for purposes of RESPA. The catch is, however, that the prohibition on paying or receiving referral fees uses the term "person" rather than "settlement service provider." That brings in all human beings and lots of legally created entities.

Now here's the fun part. RESPA prohibits both the payment and receipt of a referral fee. Both acts are crimes.... Can you imagine your customer eating dinner in that nice local restaurant but being arrested mid-meal by the HUD police for Section 8? Dinner and jail?

Imagine 20 people going to the pokey in mid-meal. Angry, hungry and mad. And the 21st person in the cell is the banker fellow who signed their letters!

Thanks for reminding us that tis not always better to give than to rceive. Sometimes you're both in trouble.

RESPA Section 8 - I call it the "Buy a donut, go to jail" law. Anyone remember the old days when Title or Escrow Companies would send breakfast pastries to the mortgage department? Anyone know the statute of limitations on Section 8 violations?

Or how about the old days when the title work provider did the work for bank employees for free?

The coupon program just screams, "Section 8 violation here. Gain national notoriety by prosecuting us for this one."