The D.C. Circuit’s 2016 decision in PHH Corp. v. Consumer Financial Protection Bureau, 839 F.3d 1, established that RESPA Section 8’s safe harbor at §2607(c)(2) protects payments that compensate bona fide services actually performed at fair market value — even when the parties also share a referral relationship. Private lenders who structure referral programs without understanding this framework expose themselves to disgorgement and civil liability.

What the PHH Case Actually Decided

PHH Mortgage operated a captive reinsurance arrangement in which mortgage insurers paid premiums to a PHH-affiliated reinsurer in exchange for ceded reinsurance on PHH-originated loans. The CFPB charged a Section 8(a) violation and sought disgorgement. The D.C. Circuit panel — in an opinion authored by then-Judge Kavanaugh — held that §2607(c)(2) permits arrangements that exchange fair-market-value services, and that the CFPB had erred by treating the reinsurance arrangement as a per-se kickback rather than examining whether the payments reflected services actually performed at reasonable value. The full court reheard the case en banc, affirmed the constitutional reading, and the §2607 analysis carried forward as controlling precedent in the circuit.

Expert Take

The PHH decision is the most consequential RESPA ruling in a generation for private lenders who generate deal flow through referral networks. The panel’s plain-text reading of §2607(c)(2) restored a workable safe harbor that the CFPB had effectively written out of existence. Lenders who understand the three-part test — services actually performed, fair market value, no disguised referral compensation — build compliant programs. Lenders who ignore it absorb enforcement risk that has no ceiling.

RESPA Section 8 in Plain Language

12 U.S.C. §2607(a) prohibits giving or accepting any fee, kickback, or thing of value pursuant to any agreement or understanding that business incident to a real estate settlement service involving a federally related mortgage loan shall be referred. Section §2607(b) prohibits fee-splitting except for services actually performed. Section §2607(c) carves out three permitted structures: payments between a lender and its duly appointed agent; payments for goods or services actually furnished at fair market value; and employer-to-employee payments. Every referral arrangement that does not fit one of these three carve-outs is presumptively a violation. The §2607(c) safe harbors are not suggestions — they are the only defended structures under the statute.

What PHH Allows That the CFPB Previously Rejected

Before PHH, the CFPB read §2607(c)(2) to exclude any service-for-payment arrangement that also involved a referral relationship. PHH read §2607(c)(2) at face value: a service-for-payment arrangement that compensates bona fide services at fair market value sits inside the safe harbor regardless of whether the parties also refer business to each other. The decision opened space for marketing services agreements, desk-rental arrangements, and co-marketing structures — provided the payment compensates services actually rendered, not the referral itself. Private lenders who generate deal flow through brokers, attorneys, and real estate professionals can use these structures lawfully when the discipline is right.

The CFPB’s Post-Decision Guidance

The CFPB issued an October 2020 FAQ on RESPA Section 8 that accepted PHH’s reading of §2607(c)(2). The FAQ confirmed that marketing services agreements between settlement-service providers are permitted when three conditions are satisfied: the payments compensate services actually performed; the payments reflect fair market value; and the agreement is not structured to disguise referral compensation. That FAQ is the operational framework private lenders and their counsel work from today when designing compliant referral programs.

Where Post-Decision Arrangements Still Fail §2607

Three failure modes recur in enforcement actions. First, payment that varies with referral volume — a per-deal bonus, a sliding-scale fee, or any arrangement in which the payment rises as referrals increase. Second, payment for services not actually performed — a marketing fee the payor cannot document with deliverables, time records, or evidence of actual marketing activity. Third, payment above fair market value — an inflated desk rent, an above-market co-marketing fee, or any arrangement where an arm’s-length comparison reveals the payment exceeds what the market would bear for the service alone. Each failure mode signals that the arrangement compensates the referral rather than the service, landing it outside the §2607(c)(2) safe harbor.

Private lenders building compliance infrastructure around referral programs benefit from the same documentation discipline that supports sound servicing practices generally. The seven compliance mistakes private lenders make most frequently include exactly this gap — failing to paper the service relationship before payments begin.

How a Private Lender Should Structure a Referral Program

The PHH framework and the CFPB’s 2020 FAQ support three structures when designed with precision. A marketing services agreement that pays fair-market value for marketing services actually performed, documented with deliverables, activity logs, and time records. A desk-rental arrangement at market rent for office space the paying party actually uses, benchmarked against local commercial comparable rates. A co-marketing arrangement where each party pays its pro-rata share of joint marketing costs, with receipts and allocation records that survive audit.

Every structure must be committed to writing before any payment changes hands, valued at arm’s length using documented market comparables, and reviewed by qualified legal counsel before launch. Lenders who follow this discipline run a defensible referral program. Lenders who treat the PHH decision as a general permission slip — without implementing the underlying discipline — absorb the enforcement risk the decision was never designed to eliminate.

Compliance discipline in referral structuring connects directly to broader private-lender obligations. The mandatory disclosures private mortgage lenders must make, the essential policies for private lender compliance manuals, and the AML and red-flag obligations private lenders carry all reinforce the same principle: documentation before disbursement, value before payment, counsel before launch.

Frequently Asked Questions

Does RESPA Section 8 apply to private mortgage notes?

RESPA’s Section 8 prohibitions apply to federally related mortgage loans, which the statute defines broadly to include loans secured by residential real property on which the lender intends to sell the loan in the secondary mortgage market or which is made by a federally regulated lender. Private lenders who originate notes they plan to sell or who otherwise meet the federally related definition are within RESPA’s scope. Lenders whose loans fall outside that definition face state-law equivalents in many jurisdictions. Qualified counsel determines scope for each program.

Can a private lender pay a broker for referrals under PHH?

A private lender cannot pay a broker solely for a referral — §2607(a) prohibits that payment regardless of PHH. What PHH protects is a payment for services actually performed at fair market value, even when the service provider also refers loans to the lender. The distinction is foundational: payment for the service is lawful; payment for the referral is not; payment that is nominally for the service but actually tracks referral volume is treated as payment for the referral.

What documentation should a private lender keep for a marketing services agreement?

Documentation must establish three things: the services were actually performed, the payment reflects fair market value, and the payment does not vary with referral volume. Records should include the written agreement executed before payments begin, a description of specific services with measurable deliverables, contemporaneous evidence of performance (samples, activity logs, reports), a fair-market-value benchmark from an arm’s-length source, and payment records that show flat or performance-based (not referral-count-based) compensation. Retain these records for the applicable statute of limitations in the relevant jurisdiction.

How does the 2020 CFPB FAQ change how private lenders operate?

The FAQ confirmed what PHH held: the §2607(c)(2) safe harbor is available to marketing services agreements that satisfy the three-part test. Before the FAQ, lenders faced uncertainty about whether the CFPB would attack compliant agreements in enforcement. The FAQ removed that ambiguity operationally — compliant agreements are protected. The FAQ did not expand the safe harbor; it confirmed its contours. Private lenders use the FAQ as a checklist: services performed, value documented, no referral-count linkage.

What is the enforcement consequence of a §2607 violation?

Section 8 violations expose the parties to civil liability of three times the amount of the charge paid for the settlement service, plus attorney’s fees, under 12 U.S.C. §2607(d)(2). State attorneys general and the CFPB hold enforcement authority. The CFPB’s disgorgement demands in the PHH case itself illustrated how large the exposure becomes when a lender operates a systematic referral program outside the safe harbor over multiple years. Disgorgement and treble damages combine with reputational and licensing risk to make §2607 exposure existential for most private lenders.