Incentives for Loan Customers

Question: Our loan manager wants to introduce an incentive to anyone who purchases a home from a certain builder (one of our customers) and subsequently finances the home through our Bank. Does this pass RESPA's Section 8 smell test?

Answer: RESPA permits benefits that flow directly to the consumer. It prohibits benefits exchanged between settlement service providers. As long as you can demonstrate that the only beneficiary of this incentive is the customer, the incentive should be ok. However, if this is actually designed to benefit the developer, such as by increasing sales by advertising this incentive, the situation begins to smell of eau de Section 8.

Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 14, 12/05