Recently, the Supreme Court of the United States resolved a split in the Circuits with respect to 12 U. S. C. §2607(b), a provision of the Real Estate Settlement Procedures Act (“RESPA”). As we all know, RESPA regulates the market for real estate “settlement services,” which is defined broadly by the statute to include not only settlement itself but also “any service provided in connection with a real estate settlement.” 12 U. S. C. §2602(3). Among RESPA’s consumer-protection provisions is §2607, forbidding the giving or receiving referral fees or “any portion, split, or percentage of any charge” related to a settlement unless the receiver had actually rendered services on the deal.
In 2008, the plaintiffs (three married couples) sued Quicken Loans for charging fees for which no services were rendered, which became Freeman, et al. v. Quicken Loans, Inc., 566 U.S. ___ (2012). Specifically, the plaintiffs collectively sued over Quicken’s loan discount, processing, and origination fees that were not accompanied by an offer of lower interest rates for the plaintiffs’ loans. In other words, the plaintiffs argued that these fees weren’t tied to a particular service rendered. Quicken was granted summary judgment on the grounds that these allegations fell outside the scope of the prohibition of §2607, which forbids only fee-splitting (as opposed to unearned fees). The United States Court of Appeals for the Fifth Circuit affirmed.
Justice Scalia delivered a unanimous decision of the Court, which affirmed the summary judgment. Justice Scalia noted that the plaintiffs’ rationale that §2607 was intended to limit unreasonably high fees was inconsistent with legislative history. In particular, upon passing RESPA, Congress directed the Department of Housing and Urban Development (“HUD”) to make a recommendation within five years of RESPA’s passing as to whether further legislation was necessary to regulate settlement fees. The clear implication, therefore, is that RESPA itself didn’t already do that, which is in direct contrast to how the plaintiffs were asking the Court to interpret RESPA.
Justice Scalia went on to expressly point out that in the Court’s view, RESPA “unambiguously covers only a settlement-service provider’s splitting of a fee with one or more other persons; it cannot be understood to reach a single provider’s retention of an unearned fee.” In fact, the plaintiffs’ interpretation could arguably make them lawbreakers. The statute penalizes both givers and accepters of illegal fees, and if Quicken’s fees were deemed illegal, then the plaintiffs would be exactly as liable, both civilly and criminally, as Quicken. (So, would a plaintiff sue itself for damages, then face a criminal fine for a lender’s high fees?) The plaintiffs, as consumers, are exactly the class of people the provision was intended to protect, so their “interpretation is amiss.”
Finally, Justice Scalia addressed an allegedly absurd result of the Court’s interpretation: that a service provider could legally charge an unearned fee of $1,000 while another could face criminal charges for taking $0.05 of a $10 fee. However, Justice Scalia noted that, “Congress may well have concluded that existing remedies, such as state-law fraud actions, were sufficient to deal with the problem of entirely fictitious fees, whereas legislative action was required to deal with the problems posed by kickbacks and fee splitting.”
In summary, a violation of §2607 requires proof of allegations of the splitting of a provider fee by two or more parties, at least one of whom must not have rendered services justifying their share of that fee.
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