- Keep auditable records of your co-marketing agreements that outline who ordered the materials, who paid for them and who created them.
- The CFPB will assume a referral arrangement exists unless you can prove otherwise. Be very careful with referrals and leads, and never use "preferred provider" language in your marketing materials.
- Be able to articulate the value of the co-marketing arrangement using metrics.
DENVER — Co-marketing agreements can help agents, brokers, and teams reach a larger audience of prospective buyers. But when forming such an agreement with a settlement service, it’s not enough for the parties involved to know what’s in RESPA (the Real Estate Settlement Procedures Act), a 44-year-old law designed to keep settlement services honest for consumers.
“The CFPB [Consumer Financial Protection Bureau] doesn’t even know what RESPA says,” noted attorney Brian Levy with Kattan & Temple, who moderated the panel. “You need to focus on how it’s being interpreted.”
Levy helmed a panel of experts — Lori Day, VP of marketing and sales strategy at HomeServices Lending; Joe Welu, founder and CEO at Total Expert; and Mark Meyer, founder and CEO at MLinc Solutions — who explained what kind of mistakes the CFPB’s auditors are looking for when they investigate a co-marketing agreement and how agents, brokers, and their settlement service partners can remain compliant.
What to know about Section 8(c)(2)
The section of RESPA that specifically addresses “unearned kickbacks” — which can include referrals — is an area of great interest for the settlement services world.
“The CFPB hasn’t issued any official guidance on co-marketing and has barely even mentioned 8(c)(2) anywhere,” noted Levy.
But that doesn’t mean there’s no guidance at all. There are a few things that Levy noted regulators generally take issue with — so you shouldn’t do them.
- You cannot pay more than general market value for any services.
- You cannot pay settlement service providers for referrals or endorsements.
- You should avoid any “preferred provider” language — “broker of choice” or anything along those lines. “That’s an endorsement,” said Levy.
- You cannot pay for what Levy called a “warm handoff.” “Stick to cold leads only,” he advised.
- You cannot require exclusivity, pre-qualification requirements “or anything else that could be viewed as a coupled referral obligation.”
The CFPB, Levy noted, is going to make the assumption that a referral agreement exists if it finds evidence of one. That means burden of proof to show that there isn’t an agreement is on you if the CFPB starts asking questions.
“You really need to train your salespeople and your co-marketers to understand these situations,” he advised. “Many of them are living in a pre-CFPB-RESPA world, at least conceptually, and they don’t understand how RESPA is being used today.”
Three things to know to survive an audit
Day explained the typical requests that HomeServices Lending gets from its service partners — and how the company has managed audits in the past.
Typical requests from agent and broker partners, she said, include:
- Asking service providers to buy ads on broker, team or agent websites
- Asking service providers to produce co-branded materials for marketing and distribution with service providers
- Asking service providers to purchase leads from brokers or teams
- Asking service providers to pay brokers, teams or agents for marketing and co-marketing materials
Day has been through a CFPB audit and noted that the bureau asked for a separate time stamp for compliance approval of different marketing materials. “We considered compliance a part of the team,” she explained, “but the CFPB is looking for that approval to come separately,” so now they’ve added a “compliance approval” time stamp to the documentation.
There are three tools that Day says have helped the company manage its CFPB co-marketing compliance:
- A CRM (customer relationship manager) add-on that hosts templatized compliance-ready materials for mortgage loan officers (MLOs) can make it easy for them to quickly find appropriate materials.
A company co-marketing “store” that streamlines marketing requests can utilize one vendor for hosting all print collateral. “We can see what materials are being used frequently and how we can enhance those,” she said.
They integrated with Total Expert, Welu’s company, to track marketing materials and co-marketing payments in the event of an audit. Real estate agents and mortgage loan officers can use credit cards or general ledger charges to pay for their part of the marketing (down to the pixel) before it even goes to press or development.
“The one piece we’re really stringent on with the MLOs is, ‘You can’t use anything that’s not compliant,'” she added. “We just had to educate them as to the ‘why,’ and they get that now.”
Deploying and managing co-marketing materials
Welu said that Total Expert was conceived as a way to have “two liked-minded professionals jointly delivering their value proposition to the same target consumer.”
After all, if you share the same values as a particular MLO, and you know that person is going to do right by your clients, then you should be able to target clients together, he opined.
The CFPB wants to see “a separation of church and state” when it comes to co-marketing arrangements, so Total Expert helps track who’s responsible for what portion or percentage of the co-marketing materials and ensure that the right people are paying the right amounts for the marketing before it’s ever shipped.
The best practice around co-marketing, Welu said, is creating or maintaining the ability to create audit-level reports. That includes who ordered the co-marketing material, who paid for it and who created it.
“If you do that, you’re going to be able to co-market at scale in your organization,” he said. “You have to have some discipline around this stuff.”
That sounds simple enough, but co-marketing participants also need to understand how digital assets are valued and verified in order to ensure they’re playing fair.
Mark L Meyer, Founder and CEO of MLinc Solutions, suggested tracking impressions or pageviews over click-through rates, because impression and pageview metrics measure reach instead of effectiveness.
Digital ads can be verified with screenshots or printouts of a webpage, Meyer said. “And if there’s a problem getting the date and time on there, then people take iPhone photographs of the screen,” he said.
There are a few key attributes to consider with valuing web advertising, he added:
- The size and type of ad — is it a banner? Embedded elsewhere on a page?
- Where is the ad placed on the page? Is it “above the fold: — you don’t have to scroll at all to see it — or “below the fold”?
- Is the ad linked or framed or added to the menu at all? How is it served by the page (is it a pop-up?)?
- Is the ad in a rotation, where it’s sharing page space and impressions with one or more different ads?
- Is the website mobile-responsive? You can probably assume at least half of the site’s visitors are on a mobile device, and an unresponsive page could really hurt your ad.
Meyer said that the best places for settlement service providers to advertise on real estate websites are still the listing and property search pages, followed by the home page. Financing pages or provider pages are much less frequently visited.
Sometimes, settlement service providers might try to advertise on an intranet — a site or portal that’s internal to agents, brokers, association or MLS members.
This is not general consumer advertising and has different requirements for assessment, Meyer noted. Settlement service providers will want to consider if the value is by impressions or the number of members in the organization, and Meyer added that it’s more difficult to verify advertising independently on private networks, so placing an ad on the login page might be one way to ensure it’s being seen.
“Regulatory attention to this is growing,” Levy said. He suggested the following steps to ensure co-marketing compliance?
- Train your salespeople on RESPA sensitivity — especially with referral sources
- Keep systemic and auditable records for marketing, co-marketing, branding and compliance
- Increase centralized control over marketing — change ease of deployment and corporate oversight if necessary
- Implement a compliance framework — independent valuation and verification, policies and procedures, and a disciplined system