By Amber Cushman, Compliance Attorney – DocuTech Corporation
Brief overview
On May 24, 2012, the Supreme Court issued a unanimous decision on the interpretation of RESPA Section 8(b) (12 U.S.C. § 2607(b)), which reads: “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.” The circuit courts were split on whether Section 8(b) prohibited lenders from accepting unearned undivided fees. The Supreme Court held that borrowers have no claim under RESPA Section 8(b) unless the unearned fee was split between two loan service providers.
Summary of facts
In 2008, three couples from Louisiana brought suit against Quicken Loans, Inc., alleging Quicken violated RESPA Section 8(b) by charging loan discount fees but failing to provide the borrowers with lower interest rates. Two couples claimed Quicken Loans had also split an appraisal fee with a title company. One couple claimed a loan discount fee was misidentified on the HUD-1 as a loan origination fee, and that no loan discount was provided. All three couples brought individual suits in Louisiana state courts. Quicken removed all three cases to federal court on the RESPA issues, and the cases were consolidated. Quicken then filed for summary judgment, which the state court granted. The Plaintiffs appealed to the Fifth Circuit, which upheld the summary judgment, and then the Plaintiffs appealed to the Supreme Court.
Summary of reasoning
The Plaintiffs based their argument on a statement issued by HUD in 2001 which interpreted Section 8(b) to prohibit unearned undivided fees. The Court declined to give deference to the HUD opinion on the basis that the language of Section 8(b) is unambiguous and the HUD opinion was inconsistent with the statutory language. The decision turned on close analysis of the statutory language, and the Court found that the phrase “No person shall give and no person shall accept” necessarily required two parties, one giving and one accepting, the unearned fee. The Court declined to follow the Plaintiffs’ interpretation of the language wherein the consumer was the person giving the fee and the lender was the person accepting the fee, as the consumer would then be liable to itself for the lender overcharging for loan settlement services. Again, the Court gave no deference to the portion of the HUD opinion which stated that action against consumers would be unlikely. The Court also declined to follow the Plaintiffs’ argument that the phrase “portion, split, or percentage” could be interpreted as the whole fee. Even though “portion” and “percentage” can and ordinarily do mean “whole” or “100%”, the canons of statutory construction require that all the terms in a list be read together and similar to each other, the Court reasoned. Since “split” does not mean “the entirety”, “portion” and “percentage” will not be interpreted as meaning anything to the contrary. Therefore, the language of Section 8(b) prohibits two parties dividing an unearned fee, but an unearned fee charged and retained by one party does not violate Section 8(b) of RESPA. The Plaintiffs argued that Quicken’s interpretation of Section 8(b), which was adopted by the Court, was inconsistent with the stated purposes of RESPA, which is to protect consumers from unnecessarily high settlement charges caused by certain abusive practices (12 U.S.C. § 2601[a]). Again, the Court focused on the language of the statute and found that Quicken’s interpretation of Section 8(b) did not conflict with the stated purposes of RESPA, as RESPA was limited to only preventing “certain” abusive practices, not all of them, and that if Congress had intended to prevent collection of unearned undivided fees, it would have done so. The Court pointed to state fraud remedies as a possibility for dealing with unearned undivided fees which are not prohibited by Section 8(b).
Implications
The Court’s decision has resolved the circuit courts’ split on the issue of unearned undivided fees under Section 8(b). The Court has also sent a message to HUD and other agencies issuing opinions: if those opinions are to have court deference, they must conform to existing prerequisites for deference; the opinions must logically derive from the existing statutory language being interpreted. However, the Court has left unresolved an issue under Section 8(b) in which the circuit courts are split: whether a fee mark-up is prohibited. Marked-up fees occur when a lender charges a borrower a certain amount for a settlement service from a third party, pays the third party less than was charged to the borrower, and pockets the difference. While the fee was split, the unearned portion of the fee was not split, and so circuit courts remain without guidance on the issue of marked-up fees.