The CFPB ordered RealtySouth, Alabama’s largest real estate firm, on Wednesday to pay $500,000 in penalties for disclosure practices that the agency alleges violated federal law.
Under the Real Estate Settlement Procedures Act (RESPA), which seeks to protect consumers during the homebuying process, companies are prohibited from receiving kickbacks for referrals of real estate settlement services.
According to the CFPB, RealtySouth, which is owned by the same parent company as TitleSouth, encouraged its agents and sometimes said they were required to use the company’s family of services, in particular, TitleSouth.
The CFPB alleged in its consent order that for more than a year, RealtySouth had a purchase contract, which was provided by company agents to homebuyers preparing to make an offer on a home, that stipulated customers were required to pay a fee to TitleSouth for title and closing services.
Though RESPA permits real estate firms to refer customers to affiliates, the law requires that they provide consumers with an affiliated business arrangement (ABA) disclosure that explicitly states their right to choose not to use the affiliate company.
The CFPB said the ABA disclosure provided to consumers did not comply with federal law because it did not state the consumer’s rights and failed to display the required language clearly in the text of the disclosure. After being contacted by the CFPB, RealtySouth immediately changed its disclosure forms.
“Disclosures give consumers the power to make informed financial decisions, and buying a house is among the biggest financial decisions most people ever make,” CFPB Director Richard Cordray said. “The Consumer Bureau will continue to take action against companies that attempt to modify disclosures and keep consumers in the dark.”
RealtySouth, under the terms of the consent order, will be required to ensure that its disclosure forms comply with RESPA and to implement training materials emphasizing that agents cannot require the use of affiliated firms.