It Takes Two to Tango: The Supreme Court
Rejects Unilateral Liability under Section
8(b) of RESPA
By Phillip L. Schulman, Andrew C. Glass, Holly Spencer Bunting, Roger L. Smerage
The United States Supreme Court has unanimously ruled that a real estate settlement service provider
does not violate Section 8(b)1 of the Real Estate Settlement Procedures Act (“RESPA”) where it keeps
for itself an allegedly “unearned fee.” Instead, a provider violates Section 8(b) when it divides a fee
with another entity which did not provide services in connection with the fee. The Court’s decision,
Freeman v. Quicken Loans, Inc.,2 resolves a decade-old split among the lower federal appellate courts.
Moreover, the decision makes clear that policy statements promulgated by the U.S. Department of
Housing and Urban Development (“HUD”), applying Section 8(b) to a broad range of conduct, are not
entitled to deference given their conflict with the unambiguous language of the statute itself.
Nevertheless, the Court’s holding is limited to assessing unearned fees in light of RESPA, and
settlement service providers should be aware that charging such fees may run afoul of other laws and
enforcement mechanisms.
Background
Congress enacted RESPA3 “to insure that consumers throughout the Nation are provided with greater
and more timely information on the nature and costs of the settlement process and are protected from
unnecessarily high settlement charges.”4 RESPA contains prohibitions on kickbacks (Section 8(a))
and fee-splitting (Section 8(b)).5 Section 8(b), the focus of the Freeman decision, states:
No 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 in connection with a
transaction involving a federally related mortgage loan other than for services actually
performed.6
As discussed in a previous K&L Gates Client Alert,7 HUD interpreted Section 8(b) as prohibiting the
collection of a fee from a consumer for which a settlement service provider performed no service but
kept the entire fee for itself – a so-called “unearned, undivided” fee.8 The federal courts of appeals
were divided over whether to adopt this aspect of HUD’s interpretation of Section 8(b).9 After the
most recent of these decisions in the Fifth Circuit,10 the Supreme Court finally granted certiorari to
resolve the circuit split.11
The Freeman Court’s Analysis
In a unanimous decision, the Supreme Court concluded that “to establish a violation of [Section 8(b)],
a plaintiff must demonstrate that a charge for settlement services was divided between two or more
persons.”12 The Court reasoned that Section 8(b) “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.”13 The Court interpreted Section 8(b) as requiring “two
distinct exchanges” before liability will attach: first, the service provider must receive a “charge” from
June 7, 2012
Practice Group:
Consumer Financial
Services
For more news and
developments related
to consumer financial
products and services,
please visit our
Consumer Financial
Services Watch blog
and subscribe to
receive updates.
