Over the past few years, the Consumer Financial Protection Bureau (“CFPB”) has taken center stage for its aggressive enforcement posture.  While I have major disagreements with the CFPB’s regulation/guidance through enforcement practice, particularly as it impacts the real estate title industry given the fact that the vast majority of title agencies are small businesses that do not have the resources to hire in house compliance officers or hire expensive outside counsel, its most recent enforcement action seems to be misunderstood.

Meridian Title, a real estate settlement agent located in Indiana, was recently the target of a CFPB investigation and resulting consent order wherein it agreed to pay up to $1.25 million in redress to consumers.  Like most title and settlement agencies, Meridian issued title policies on its underwriter’s paper.   A cursory reading of blog’s, news reports and even a recent news video that a local real estate agent shared with me would have one believe that every real estate settlement company does this and would therefore be subject to an enforcement action unless a proper disclosure were given to every consumer.

However, most of these reports missed or overlooked an important fact.  Certain executives of Meridian Title also had an ownership interest in Arsenal Insurance Corporation, the title insurance company on whose paper the title policies issued by Meridian Title were issued.  The CFPB concluded that Meridian Title was receiving a thing of value for the referral of settlement service business to an affiliated business (Arsenal) pursuant to an understanding or agreement.

The facts do not support certain reports suggesting that every real estate settlement company does this.  The vast majority of real estate settlement companies do not have any ownership interest in the underwriters/insurance companies on whose paper they issue title insurance policies.  As such, there is no “thing of value” received by the real estate settlement company for using a particular title insurance company, unless the CFPB takes the position that even in the absence of common ownership, the agency agreement itself between the settlement company and the insurance company is a thing of value.  In which case, every real estate settlement company would have to provide a disclosure because that is how the agency/insurance company relationship is established as is the case for almost all agency/insurance company relationships.

Be careful where you get your news from . . . shockingly, it may be inaccurate or misleading.