The Supreme Court of the United States recently held that a borrower must demonstrate that a charge for settlement services was divided between two or more persons in order for the fee splitting prohibition of the federal Real Estate Settlement Procedures Act ("RESPA") to apply. A copy of the opinion is attached.
The plaintiffs in this action were three married couples who obtained mortgage loans from the defendant lender ("Lender"). The plaintiffs alleged they were charged fees for which no services were provided, in the form of "loan discount fees," "processing fees," and "loan origination fees."
Lender moved for summary judgment on the ground that the plaintiffs' claims were not cognizable under RESPA, 12 U.S.C. §2607(b) ("section 2607(b)") because the allegedly unearned fees were not split with other parties. The District Court agreed and granted summary judgment in favor of the plaintiffs. A divided panel of the United States Court of Appeals for the Fifth Circuit affirmed. On appeal, the Supreme Court affirmed.
As you may recall, section 2607(b) provides in relevant part that "[n]o person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service . . . other than for services actually performed."
The Supreme Court noted that the question on appeal "boil[ed] down to whether [section 2607(b)] prohibits the collection of an unearned charge by a single settlement-service provider . . . or whether it covers only transactions in which a provider shares a part of a settlement-service charge with one or more other persons who did nothing to earn that part."
The plaintiffs cited to the 2001 policy statement issued by the Department of Housing and Urban Development in arguing that section 2607(b) should apply to an unearned charge by a single-settlement-service provider. As you may recall, the policy statement provides, among other things, that section 2607(b) is not limited to situations where at least two persons split or share an unearned fee.
However, the Supreme Court held that section 2607 "unambiguously covers only a settlement-service provider's splitting of a fee with one or more other persons." The Court reasoned that "by providing that no person 'shall give' or 'shall accept' a 'portion, split, or percentage' of a 'charge' that has been 'made or received,' 'other than for services actually performed,' §2607(b) clearly describes two distinct exchanges."
The Supreme Court explained that there first must be a "charge" that is "made" or "received" from a consumer by a settlement-service provider. Next, that provider must "give," and another person "accept," a "portion, split, or percentage" of the charge. The Court stated that "Congress's use of different sets of verbs, with distinct tenses . . . would be pointless if . . . the two transactions could be collapsed into one," as the plaintiffs argued.
The plaintiffs attempted to "avoid collapsing the sequential relationship of the two stages," by arguing that it is the consumer who "give[s]" a "portion, split, or percentage" of the charge to the provider who "accept[s]" it. The Supreme Court disagreed with the plaintiffs' interpretation, noting that it would lead to a result where the consumers were lawbreakers under the statute for giving an unearned fee.
The Court further stated that "[t]he phrase 'portion, split, or percentage' reinforces the conclusion that §2607(b) does not cover a situation in which the settlement service provider retains the entirety of a fee received from a consumer." The Court noted that while "portion" and "percentage," can be used to include the entirety of the fee, it is not the normal meaning of either word.
The plaintiffs also argued that if section 2607(b) is not construed to reach undivided unearned fees, then "it would be rendered 'largely surplus age' in light of §2607(a)'s express prohibition of kickbacks." The Court did not agree, stating that "each subsection reaches conduct the other does not."
Finally, the plaintiffs argued that the purpose of RESPA would be served by applying the statute in the manner they proposed. The Court again disagreed, stating that "[v]ague notions of statutory purpose provide no warrant for expanding §2607(b)'s prohibition beyond the field to which it is unambiguously limited: the splitting of fees paid for settlement services."
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
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Email: RWutscher@mtwllp.com
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