July 5, 2020|CFPB, Marketing & Sales, RESPA
It is inconceivable that readers of this blog wouldn’t already know (i) it’s illegal to give or receive a thing of value in return for referral of settlement services[1], and (ii) I often include fun and important insights and pop culture references and videos in hyperlinks and footnotes.
“Likes” and RESPA
Meanwhile, I keep hearing that some RESPA enforcement regulators are finding RESPA violations, claiming that a “like” on social media post is “a thing of value”. The same holds true for reposting someone else’s posting. As a result, while no court has ruled on the issue and no official policies on the topic have been issued by CFPB[2], many cautious mortgage company compliance officers prohibit likes and reposting of agent listings or other postings from referral sources.
Why is that? Let me explain. No, there is too much, let me sum up. The RESPA violation theory summarized is that by “liking” or reposting, you are either (i) endorsing[3] the post, or (ii) providing additional marketing exposure to the original poster. In either event, while the value of the like or repost, may be miniscule[4], RESPA does not have a “de-minimus” threshold. So, assuming there is an agreement or understanding regarding referrals between the parties, the like or reposting could be seen as compensation for those referrals and thus a violation of Section 8 (a) of RESPA.
The agreement or understanding question is a factual issue, but often RESPA enforcement types just assume an agreement about referrals exists[5]: asking (rhetorically) what other reason/motivation/narrative would there be when likes and repostings are provided to referral sources if not to provide something for the referrals?[6] Regardless of the inconceivably small value for any like/reposting, it’s still greater than zero and thus, technically, a thing of value under RESPA.[7]
But, that doesn’t end the RESPA inquiry. We still need to know (i) whether there is an agreement or understanding, or (ii) does any exception exist[8] for the exchange. So, like, what is really going on with “likes”? Like, what now? Emilia Clarke can do a Valleyspeak accent?!! Khaleesi, like, really?!!
Kevin?!!
I’ll illustrate these issues using a fictional mortgage originator named Kevin. Kevin, in addition to being quite active on Linked-In, is a tall guy (no Fezzik…, but he knows why people wear masks today). Kevin also just had his 8th heart stent implanted (successfully!)[9]. Kevin is not a Realtor, but is quite familiar with RESPA having been, among other career highlights, RESPRO Chairman for a year (a few years after yours truly).
Kevin finds listings in his market area posted on LinkedIn and then “likes” the posting and reposts it to his followers. He then lets the social media algorithms do their thing in terms of causing that to get publicized on social media feeds. Kevin doesn’t have any agreements or understandings with the Realtors he “likes” or reposts. In fact, most of the listings are from Realtors Kevin doesn’t even know.
Likes=RESPA Violations? Inconceivable!
So, is Kevin violating RESPA by marketing the listings to his network of followers in return for a hoped-for referral of a customer from the Realtor as a thank you for the publicity or endorsement of a “like”? No, Kevin is not violating RESPA. In my hypothetical, Kevin has no agreement about referrals with anyone. So, I assumed away the agreement question just as the Cordray era enforcement types would have assumed its existence (see footnotes 5 and 6). See what happens when you assume? But, what if we drop our assumptions and accept that the agreement question is more muddled?
Kevin’s Narrative is Co-Marketing
Again, I’m not offering any legal opinions here, just my assessment of a hypothetical that I think may be fairly typical. In my view, Kevin is co-marketing with these Realtors even though an agreement to do so is almost impossible to prove. As a result of the algorithms used by social media sites like LinkedIn and their identification of people who “like” a posting, Kevin’s name shows up as “liking” the listing on the Realtor’s and other feeds and this provides Kevin with exposure to people who will need mortgage loans (his potential customers). Kevin can’t offer real estate sales, but the Realtor can, and, just by re-posting or liking a listing, Kevin can market himself to potential customers without violating any real estate sales licensing laws.
So, while a Realtor may get a tiny thing of value from Kevin in terms of additional marketing exposure to Kevin’s network, the ability to like and repost the listing also puts Kevin in front of other Realtors’ and potential mortgage lending customers. All parties seem to benefit from this co-marketing even if they have no agreement between each other.
Co-marketing RESPA Analysis
Traditional RESPA co-marketing analysis (under the 8 (c)(2) exception) would require you to measure the cost of the marketing and allocate it based on the relative exposure provided to each co-marketer. That analysis also assumes the parties have an agreement to co-market. Unlike a shared billboard or newspaper ad, however, LinkedIn charges nothing to post or like a listing and there is no requirement for the co-marketers to agree on anything (other than perhaps the social media company’s terms of service). We’re probably talking about pennies in value either way[10], but to me this is a mutual sharing that roughly cancels each other out. In other words, this is just co-marketing where the co-marketers don’t even have to know each other to promote each other and share roughly equal value in both directions.
I have become somewhat renown among mortgage compliance circles for repeating a mantra about the importance of articulating and documenting a compliant narrative for marketing activity subject to RESPA, whether it’s a desk lease, MSA or any other relationship. The same holds true for social media.
[1]Why in the world would you read this blog otherwise? Princess Bride references?
[2] Some in the industry would like the CFPB to provide more guidance on RESPA. Perhaps that might be good for the industry under the current CFPB leadership, but given the recent SCOTUS decision in the Seila Law case making the CFPB Director removeable at the will of the President (and the prospects for a change in the White House with the next election), perhaps not. Oh, and that 2015 Compliance Memo about MSA’s, was essentially repudiated by the DC Circuit in CFPB vs. PHH, so do we really need the CFPB to confirm that?
[3] An endorsement is often viewed as tantamount to a referral under RESPA. Please see footnote 7 below.
[4]Please contact avid Musings reader Mark Meyer at MLinc Solutions for a RESPA sensitive valuation of any marketing opportunity (and more).
[5]See virtually any Richard Cordray era CFPB RESPA related Consent Order (pre-PHH).
[6]Cordray era CFPB enforcement folks and some state regulators would put the burden of proof on Kevin to “disprove the negative” to show his motivation was compliant. Again, but see, CFPB vs. PHH
[7]This is not legal advice-See https://mortgagemusings.com/f/preludwhat-is-levys-mortgage-musings
[8]See e.g., Section 8 (c)(2) regarding payment for goods, services or facilities provided.
[9]Any similarities to an actual person are purely coincidental. 8 heart stents?!! Inconceivable!
[10]Again, call MLinc if you want to know what that’s worth.