According California Association of Realtors, "the U.S. Supreme Court unanimously decided yesterday that RESPA does not pertain to a single settlement-service provider’s retention of an unearned fee (Freeman v. Quicken Loans, Inc., 10-1042). This court decision does not affect RESPA’s prohibition against referral fees or other laws prohibiting misrepresentations and secret profits. The decision should nevertheless deter lawsuits that have been filed against real estate brokers who charge consumers a flat fee in addition to a percentage-based commission."
How does this affect consumers in real terminology?
"RESPA" stands for the Real Estate Settlement Procedures Act. This regulation outlaws "kickbacks" which increase the settlement costs. Before this act was passed, it was common for lenders to advertise low interest rates that were conditioned on the borrower using the lender's choice of title and/or escrow company. Those companies would charge inflated settlement fees for their services, and pay a "kickback" to the lender for the referred business. RESPA made those and similar practices illegal.
Currently, some lenders and real estate brokerages charge their clients a flat fee for some services plus the commission on the transaction. In the case against Quicken Loans, consumers attested that they were charged a loan discount fee, but did not receive a reduced interest rate. They brought the lawsuit again Quicken stating it violated RESPA laws because it was an unearned fee. Quicken Loans defended their side stating they had clearly disclosed the fee on the good faith estimate and estimated closing statements that the consumer agreed to prior to the closing of the loan.
The Supreme Court determined that the statute “unambiguously covers only a settlement-service provider’s splitting of a fee with one or more other persons; it cannot be understood to reach a single provider’s retention of an unearned fee.” So, the courts have decided that RESPA does not protect consumers from a lender who wants to add "unearned fees" like discount points. RESPA has successfully blocked consumers from being overcharged on settlement fees in order to provide a kickback to a third party, but it clearly isn't preventing the consumer from overpaying simply to line the pockets of a single provider. This verdict will surely generate a need to modify RESPA or add a new statute to protect the consumer in cases like the one decided yesterday.