Affiliated Business Arrangement

Question: Could you clarify a RESPA issue? One of our lenders insists that if the consumer does not pay up front for the use of our bank's Director's law firm then he is not required to issue an Affiliated Business Arrangement Disclosure. I disagree, politely. As I read Section 3500.15, the responsibility for the disclosure falls on the person or institution making the referral. Further, if this particular law firm is required as the servicer with no consumer choice or a fee is imposed for the service, then the timing of the disclosure MUST be at application.

Answer: How nice that you can be polite when lenders invent criteria that simply are not in the law. We are impressed! The affiliated business referral pays no attention whatsoever to when and how the consumer pays. In fact, none of the settlement-related requirements are triggered by when and whether the consumer pays for the service. HUD assumes that the consumer pays even if the cost is not directly passed on to the consumer. And all service providers and their fees must be disclosed, even if the consumer writes the check to the bank or a settlement agent. When dealing with Section 8 and the sensitivity that Section 8 carries, lenders should be especially careful. Inventing excuses to avoid giving a disclosure is not much different from making a reservation in a jail. So hang tough. You are absolutely correct.

Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 4, 4/05