Schnader Harrison Segal & Lewis LLP
Schnader
attorneys at law
Schnader Harrison Segal & Lewis LLP
Schnader
attorneys at law
Schnader Harrison Segal & Lewis LLP
Schnader
attorneys at law
New York
PeNNsYlvaNia
CaliforNia
washiNgtoN, D.C.
New JerseY
DelawareNew York
PeNNsYlvaNia
CaliforNia
washiNgtoN, D.C.
New JerseY
DelawareNew York
PeNNsYlvaNia
CaliforNia
washiNgtoN, D.C.
New JerseY
Delaware
May
2012
(continued on page 2)
Resolving the Split on Split Fees Under RESPA:
Freeman v. Quicken Loans
Holds That Fee-Splitting
Is Prohibited Only if the Fee Actually Is Split
By Stephen A. Fogdall and Elizabeth Nicolas
On May 24, 2012, the Supreme Court of the United States
issued a unanimous decision in Freeman v. Quicken Loans,
Inc., No. 10-1042, 566 U.S. __ (2012), resolving a split be-
tween the Second and Fifth Circuits as to whether Section
8(b) of the Real Estate Settlement Procedures Act (“RE-
SPA”) prohibits a settlement-service provider from charg-
ing a borrower an “unearned” fee, i.e., a fee for which the
settlement-service provider in fact provides no service to
the borrower. The court held that such unearned fees are
not prohibited by the statute; rather, Section 8(b) is vio-
lated only where a provider splits a portion of a settlement-
service fee with one or more third parties.
Section 8(b) of RESPA states that “[n]o person shall give
and no person shall accept any portion, split, or percent-
age of any charge made or received for the rendering of
a real estate settlement service … other than for services
actually performed.” RESPA § 8(b), codied at 12 U.S.C.
§ 2607(b). The plaintiffs in Freeman alleged that Quicken
Loans (“Quicken”) had violated this provision by charging
them various “loan discount,” “loan processing” or “loan
origination” fees without providing any services in return
for the fees. According to the plaintiffs, by charging these
unearned fees, Quicken had “accepted” a “portion” or
“percentage” (specically, the entire “portion” or “percent-
age”) of a “charge” made to the plaintiffs “other than for
services actually performed,” thus violating Section 8(b),
even though no “portion, split, or percentage” of the charge
ever was shared with a third party.
The interpretation urged by the Freeman plaintiffs was
not without support. A policy statement issued by the De-
partment of Housing and Urban Development (“HUD”)
in 2001 interpreted Section 8(b) to prohibit a settlement-
service provider from charging such an unearned (but un-
shared) fee. Moreover, the Second Circuit had considered
this interpretation in Cohen v. JP Morgan Chase & Co.,
498 F.3d 111 (2d Cir. 2007), and concluded that the phrase
“any portion, split, or percentage” in Section 8(b) was am-
biguous and could “plausibly be construed” to prohibit “all
unearned fees, however structured.” Id. at 120. Thus, the
Second Circuit deferred to HUD’s policy statement under
the Chevron doctrine. Id. at 126. (In 2011, after Cohen was
decided, HUD’s authority to interpret and enforce RES-
PA was transferred to the Consumer Financial Protection
Bureau (“CFPB”), pursuant to the Dodd-Frank Act. The
CFPB has adopted the HUD policy statement.)
The district court in Freeman rejected the Second Circuit’s
analysis and granted summary judgment to Quicken. The
Fifth Circuit afrmed, concluding that Section 8(b) “is un-
ambiguous and does not cover undivided unearned fees.”
Freeman v. Quicken Loans, Inc., 626 F.3d 799, 803 (5th
Cir. 2010). The Supreme Court granted certiorari to resolve
the circuit split and afrmed the Fifth Circuit’s ruling.
The Supreme Court reasoned that Section 8(b), by its plain
terms, contemplates two separate exchanges: a borrower-
provider transaction in which a “charge” is “made” by a
settlement-service provider to a borrower and “received”
from that borrower, and then a separate fee-sharing trans-
action, in which the charge “made” to, and “received”
from, the borrower is “give[n]” to, and “accept[ed]” by,
another party. Slip Op. at 6.
According to the Freeman plaintiffs’ own allegations, the
second, fee-sharing transaction required by the statute nev-
er occurred. Rather, Quicken’s alleged violation was that
it “made” charges to the plaintiffs, without providing any
service in return, and simply pocketed the fees for itself.
For such an unearned, but undivided, fee to be actionable,
Section 8(b) would have to be read to prohibit a settlement-
service provider from “accepting” from a borrower an un-
earned fee that it had itself “made” to that borrower. The
Supreme Court rejected such a reading for two reasons.
First, that interpretation would require the phrase “any por-
tion, split or percentage” in Section 8(b) to include the en-
FIN ANCI A L SERV ICES LI TIG ATION
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