Affiliated Business Arrangement

Question: I need some guidance on an affiliated business arrangement. We have an employee who is a SVP and Chief Credit Officer and is also over our Mortgage Lending Department. The SVP and his wife own a tax service which is used by a title company that has accounts at our bank and performs settlements for our customers. The title company is owned by the SVP's father in law. It is my understanding that we have an affiliated business arrangement based on the following definition: 12 U.S.C. 2602(7) defines affiliated business arrangement in which (A) a person who is in a position to refer business incident to or a part of a real estate settlement service involving a federally related mortgage loan, or an associate of a person......and (B)either of such persons directly or indirectly refers such business to that provider or affirmatively influences the selection of that provider. Do you agree that we have an affiliated business arrangement? If a referral is not made by the SVP to a customer does the disclosure apply? If the disclosure does apply and a referral is not made by the SVP but another lender how is the disclosure completed in the section for the name of the referring party?

Answer: What you have is clearly an affiliated business arrangement. No matter how you look at it, the statutory connections are there. As RESPA is written, the bank is the service provider and the SVP through family relationships provides the affiliated business connection. Thus, the referral is from the bank and the notice should reflect the bank as the referrer. The reason for this is that the SVP is presumed by law to influence the other lenders in the bank. There is no way to overcome this presumption. Thus, any bank lender making the referral must provide the notice reflecting the bank and the tax or title company as the affiliated business.

Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 2, 2/05