Disclaimer: This blog is provided for informational/instructional purposes only and does not constitute the giving of legal advice or establish an attorney-client relationship. Consult with a RESPA attorney to make sure you understand and properly comply with any and all applicable laws. As a reminder, some state and local laws prohibit or otherwise restrict activities that may be permissible under RESPA.
I often get asked about using social media to advertise and digitally market a title and settlement company’s products and services. Title companies and their referral partners (i.e. lenders, realtors, builders, etc.) must have a clear understanding of Section 8 of the Real Estate Settlement Procedures Act of 1974 (RESPA) and how it affects your use of social media. Simply posting advertising and marketing on social media could subject yourself and your company or both to violations of RESPA which may be severe, ranging civil and criminal penalties, as well as reputational damage.
Simply put, you cannot give or receive a thing of value for referral of real estate settlement services business involving a federal mortgage loan under Section 8(a) of RESPA. Under Section 8(b) of RESPA, you also cannot split fees or receive fees for services that you did not actually perform or earn. In 2011, the Consumer Financial Protection Bureau (“CFPB”) took over from the Department of Housing and Urban Development as the sole regulatory and federal supervisory agency for RESPA enforcement. Subsequently, CFPB issued rules to complement the Federal Financial Institutions Examination Council’s Social Media Guidance, which defines social media as “a form of interactive online communication in which users can generate and share content through text, images, audio, and/or video” (e.g. Facebook®, Google® Plus, MySpace®, Twitter®, Yelp®, Flickr®, YouTube®, LinkedIn®, Second Life®, FarmVille® and CityVille®). CFPB also uses social media to identify problems with individual financial services company’s RESPA compliance.
From the CFPB view, social media possess increased risk of harm to consumers since it makes it easy to attract customers. Some examples of risky posts include:
- A title company wants to invite a real estate professional to post ads for an upcoming open house on the title company’s Facebook page with a link to real estate professional’s website for property.
- A title company refers consumers to a loan officer in exchange for cash, marketing materials and consumer information.
- A title company has a marketing services arrangement with a busy local builder. The builder refers to the title company as a “preferred” service provider, or a “partner.” You both use “likes,” tagged each other in pictures, and post favorable commentary on each other’s business and personal social media pages.
- A title company advertises for donations to charity on social media based on the charity being a favorite of a busy local real estate professional.
While RESPA allows a title company to engage in activities that are promotional and educational, these activities may not be conditioned on or tied to referrals and these activities must not defray the expenses of anyone in a position to refer you settlement service business. Simply because you do not pay for use of social media and users may freely join and post does not mean you can use these platforms to advertise for referral partners without sharing in the costs of such advertisement based on fair market value. While RESPA does not prohibit joint advertising, one party may not pay less than its’ pro rata share or an amount in excess of fair market value for the advertisement or there may be a RESPA violation. Remember, there may be costs associated with promotion and advertisement even on social media.
So are there any social media dos and don’ts for title companies?
- DO be aware of what constitutes a thing of value. Any benefit or discount may be a “thing of value” whether or not it includes the transfer of money.
- DO make it clear to consumers that your post is an “Advertisement” and place this in a prominent location on each party’s social media pages and any co-marketing materials. In general, promotion of business activities on social media should be done from business rather than personal accounts and pages.
- DO distribute the advertisement to the general public and ensure the website or page reaches a broad audience rather than targeting specific consumers.
- DO consider written advertising and marketing agreements to demonstrate compliance with RESPA Section 8 and state laws and regulations governing co-marketing, advertising, privacy, and licensing.
- DO ensure that each co-marketing party pays its proportionate share of the fair market value for any and all services, including creation, design and distribution of the advertisement, and according to each party’s prominence in the advertising. Remember to clearly document and accounted for how you arrived at what each party is paying for the advertisement and how you arrive at fair market value and retain in your compliance records.
- DO NOT exchange any “thing of value” with anyone for a referral, no matter how small. RESPA does NOT have an exception for small “kickback” amount. Even minimal amounts (i.e., $5 gift card) are considered a “thing of value” under the law.
- DO NOT endorse a referral partner on social media as this may be seen as a referral. Before you use “Like” ask if this could be a violation of RESPA and state anti-steering laws.Likewise, do not require or allow your co-marketing referral sources to endorse you.
- DO NOT pay the entire cost of leads generated through websites or arrangements. Each party must pay the fair market value for any leads each purchase. Also, do not defray any shared cost at the time of payment. Each referral partner must pay for everything on a pro rata basis.
- DO NOT use social media to ask for donations to your referral partner’s favorite charity. A donation may be considered a “thing of value” if given in exchange for referral of business and the fact that the donation is paid directly to a charity does not remove it from RESPA prohibitions. Likewise, do not offer free service or discounts or services to a charity in return for the charity advertising your settlement services.
Advertising and marketing your title, closing and settlement financial services over social media is a great way to take reach a larger audience. Remember to take a closer look at what RESPA and your state laws require to ensure your compliance on social media platforms.