CFPB Loses Case Over RESPA

A lawsuit brought by the Consumer Financial Protection Bureau against a Louisville law firm was dismissed on Friday.

In a summary judgment ruling, the U.S. District Court for the Western District of Kentucky found that law firm Borders & Borders PLC followed the Real Estate Settlement Procedures Act (RESPA) while operating title insurance agencies from 2006 to 2011, according to a NEWS release.

Morgan Ward, a partner with Stites & Harbison PLLC and one of the attorneys who defended Borders & Borders, said: “The CFPB was overreaching, and it’s unfair to target a small firm as part of a regulatory agenda.”

The case “appears to be the CFPB’s first loss on the merits at the federal trial court level,” according to the release.

The CFPB sued Borders & Borders in 2013 after the firm refused to agree with a punitive consent decree levied by the agency. The CFPB alleged that the firm and principals Harry Borders, John Borders Jr. and J. David Borders accepted kickbacks in exchange for referrals of real-estate closing services.

Borders & Borders operated nine title insurance agencies as joint ventures with local real estate and mortgage brokerage companies, according to the lawsuit, as was allowed under RESPA’s safe harbor for affiliated business arrangements. Those companies referred home buyers to Borders & Borders for settlement services, and the firm then would have the title insurance issued by one of the joint ventures.

The profits from the arrangement were split among the title insurance agencies’ owners — Borders & Borders, its principals and the referring company, according to the lawsuit.

Morgan Ward, a partner with Stites & Harbison PLLC and one of the attorneys who defended Borders & Borders, said that under RESPA, it is illegal to pay for referrals unless the law firm and mortgage broker share owners, as was the case with Borders & Borders. Consumers also must be aware of and agree with the arrangement.

Ward said the CFPB viewed RESPA’s safe harbor for affiliated business arrangements as a loophole and decided to try to close it through the courts instead of going to Congress to change the law.

“This really was a David versus Goliath kind of case,” Ward said. The CFPB “tried to send a chilling effect to the marketplace by punishing a family-owned local law firm.”

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