The Eleventh Circuit has held that flat fees charged to borrowers for credit reports do not violate Sections 8 of the Real Estate Settlement Procedures Act. The case at issue involved a flat fee pricing arrangement in which an affiliated credit report vendor agreed to charge the lender one flat fee for all credit reports required to underwrite a loan and to charge the flat fee only when a borrower applied for a loan. Plaintiffs alleged that the flat fee pricing arrangement violated § 8(a) of RESPA because the vendor allegedly was providing free credit reports for consumers who sought to prequalify but never applied for a loan in exchange for the referral of borrowers. Plaintiffs also alleged that the new pricing scheme constituted an illegal mark-up of their credit report fee because the flat fee contained the overhead associated with the unbilled credit reports. The Court first held that defendants’ change to a flat-fee model did not violate § 8(a)’s kickback prohibition absent an agreement between the lender and credit report provider to increase the referral of business between the two entities. The Court noted that there was no change in the amount of business that the lender referred to the provider both before and after the switch. The Court also rejected plaintiffs’ claims for violation of § 8(b) was not violated because the lender retained no portion of the fee, and the increase in price was related to services actually performed. Thus, there was no splitting of the fee and no fee charged other than for services performed. Goodwin Procter partners Tom Hefferon, David Permut and Bishop Sheehan represented the defendants in this case. Click here for a copy of Krupa v. LandSafe, Inc., No. 07-10061 (11th Cir. Jan. 22, 2008).
Alert January 29, 2008