In a major win for the mortgage lending industry, the U.S. Supreme Court last month ruled unanimously that the prohibition under the Real Estate Settlement Procedures Act (RESPA) on splitting fees requires at least two persons to satisfy the statutory requirement of Section 8(b), 12 U.S.C. § 2607(b).
In its ruling in Freeman, et al. v. Quicken Loans, Inc., No. 10-1042, May 24, 2012, the court found the statutory language to be plain and unambiguous, and rejected the efforts of the Department of Housing and Urban Development (HUD) and of the U.S. to establish a more expansive theory of liability.
Utilizing HUD’s Policy Statement to support their view, the claimants took the position that no split of the fee between persons is required to establish a violation. The claimants argued that deference should be given to HUD’s interpretation in its policy statement since it was the federal agency charged with interpreting RESPA, and adopting and implementing its regulations—a role that now falls under the purview of the Consumer Financial Protection Bureau (CFPB).
The court concluded, however, that deference to HUD’s views in its policy statement was not appropriate because HUD’s interpretation went beyond RESPA’s statutory framework to regulate the mortgage industry in a way beyond that which Congress had enacted.
Comparable to the arguments presented in Quicken Loans, Inc., the U.S. briefed the Magner case to argue, among other things, that deference should be given to its longstanding interpretation of the law. Further, after the court had agreed to hear this case and decide this issue on its merits, HUD took the extraordinary step of proposing new regulations, during the pendency of the case, which purported to reaffirm by regulation its theory of disparate-impact discrimination. Then, the U.S. used its own newly proposed regulation as one reason for the court to rule in favor of its policy.
As in Quicken Loans, Inc., those challenging the disparate-impact theory of discrimination relied on the plain language of the statute to argue that disparate-impact claims are not permitted, citing several previous court cases to the same effect on similar language. It was noted further that the Equal Credit Opportunity Act (ECOA) utilizes substantially the same language regarding discrimination; accordingly, if the court were to rule that the Fair Housing Act did not permit disparate-impact claims, the same result should follow regarding such claims under ECOA, effectively eliminating the disparate-impact theory of liability for fair lending.