Article Summary
The Veterans United RESPA case was brought by private borrowers, not the CFPB, DOJ or state regulators. The author argues private class actions, accelerated after Sitzer/Burnett, now drive risk for referral and lead programs.
Eleven months later, Hagens Berman filed a private RESPA class action alleging the same conduct.
The same firm filed against Veterans United a month after that. loanDepot, CrossCountry Mortgage and Zillow Home Loans are each defending private RESPA class actions, and Optimal Blue and 26 lenders are defending a price-fixing suit built on a pricing engine. Count the regulators on that list. Now count the plaintiffs’ firms. Why this is a bigger risk than an exam A regulator has discretion. It can decline to open a file, change direction after an election or drop a four-year investigation in a week. “No regulator has objected” felt safe because regulators do not object to most things. A private plaintiff has no such constraints. One borrower inside the statute of limitations. One former loan officer who kept his group texts. One agent cut off from leads after recommending a competitor. That is all it takes to put a decade-old business model in front of a federal judge and the trade press. An examiner’s finding is a confidential report, most of the time. A plaintiff’s firm’s finding is a complaint your agent partners, recruits and warehouse lender all read together in headlines. I propose that the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE) Act and all subsequent exam functions have been the floor of good business. But maybe most of us built compliance as if it were the ceiling and as long as we didn’t touch it we’d be okay. What to do with this Review every referral, lead, affiliated business and agent program you run from the point of view of the person who would sue you, not the person who would examine you. The examiner wants the agreement, the disclosure and the policy. The plaintiff’s lawyer wants to know whether they can argue harm over the agreement, not if it was structural. Follow the money and confirm every payment lines up with a real, documented service. If your answer is that it could smell like a referral fee, then keep going, because that is what Veterans United said, and the judge sent it to discovery anyway. Ask what happens to an agent’s leads when they send a client elsewhere. If the answer is restrict or something like that, then you have the fact pattern in the complaint, not a neutral referral program. Read your dashboards, scripts and group texts the way opposing counsel will. Read your complaint log for patterns, not tickets. And ask whether your compliance officer can actually say no to a channel that makes money and their direction will be followed. If not, the rest is theater set in a legal courtroom. None of this requires a new law or a new regulator. It requires looking at a profitable channel with the skepticism you would bring to a competitor’s channel. Do that, and you will be fine, whether the examiner shows up or the process server does. Veterans United may win, and if so, I will say so. But the field got bigger after Kansas City, and it is not shrinking back. The absence of enforcement was never proof of the absence of risk.It only meant the risk had not found a plaintiff yet.
I won’t say this is unprecedented, but I will say this is about to set a whole new level of precedent for us all. Nathan Knottingham is the CEO of MLO Force, a provider of NMLS-approved mortgage continuing and pre-licensing education, and a licensed loan originator since 2007. The allegations in the cases mentioned are disputed, no classes have been certified and no court has made a finding of liability. This commentary is not legal advice. This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: zeb@hwmedia.com.
