When does accepting a gift card violate federal law?

Our office has fielded several questions lately regarding the federal regulations (RESPA) that govern what gifts Realtors can or cannot accept. Agents may be offered and accepting gift cards, concert tickets, or items of value against federal law. National news is abuzz with the newly empowered CFPB’s enforcement actions about violations of RESPA – so please understand that you are PROHIBITED from accepting anything of value from a settlement service provider unless it is part of a marketing service agreement ‘MSA”.

Brokers: Please make sure your agents understand that accepting gifts (kickbacks) is governed by RESPA laws and a highly risky / serious matter.

Here is the NAR’s information so you can understand who, what and how you must act to stay in compliance:

RESPA Overview

Services that occur at or prior to the purchase of a home are typically considered “settlement services”. These services include title insurance, mortgage loans, appraisals, abstracts, and home inspections. Services that occur after closing generally are not considered settlement services. RESPA prohibits a real estate broker or agent from receiving a “thing of value” for referring business to a settlement service provider (SSP). RESPA also prohibits SSPs from splitting fees received for settlement services, unless the fee is for a service actually performed.

RESPA Covers Settlement Service Providers:

  •     Real Estate Brokers and Agents
  •     Mortgage Bankers and Mortgage Brokers
  •     Title Companies and Title Agents
  •     Home Warranty Companies
  •     Hazard Insurance Agents
  •     Appraisers
  •     Flood and Tax Service Providers
  •     Home and Pest Inspectors

RESPA does not apply to:

  •     Moving Companies
  •     Gardeners
  •     Painters
  •     Decorating Companies
  •     Home Improvement Contractors
  •     Your Seller / Buyer Clients

Examples of PROHIBITED Activities and Payments

  1. A title company hosts a monthly dinner and reception for real estate agents.
  2. A mortgage lender provides lunch at an open house, but does not distribute brochures or display any marketing materials.
  3. A closing attorney gives gift cards to top producing real estate agents.
  4. A hazard insurance company hosts a “happy hour” and dinner outing for real estate agents.
  5. A home inspector pays for a real estate agent to go to dinner, but does not attend the dinner.
  6. A title company makes a lump-sum payment toward a function hosted by the real estate agent, but does not provide advertising materials or make a presentation at the function.
  7. A mortgage broker buys tickets to a sporting event for a real estate agent, or pays for the real estate agent to play a round of golf.
  8. A title company sponsors a “get away” in a tropical location, during which only an hour or two is dedicated to education and the remainder of the event is directed toward recreation.
  9. A mortgage lender only pays a real estate agent for taking the loan application and collecting credit documents if the activity results in a loan.
  10. A mortgage broker pays for a lock-box without including any information identifying the mortgage broker on the lock-box.

Examples of PERMISSIBLE Activities and Payments

  • A title agent provides a food tray for an open house, posts a sign in a prominent location indicating that the event was sponsored by the title agent, and distributes brochures about its services.
  • A mortgage lender sponsors an educational lunch for real estate agents where employees of the lender are invited to speak. If, however, the mortgage lender subsidizes the costs of continuing legal education credits, this activity may be seen as defraying costs the agent would otherwise incur, and may be characterized as an unallowable referral fee.
  • A title company hosts an event that various individuals, including real estate agents, will attend and posts a sign identifying the title company’s contribution to the event in a prominent location for all attending to see and distributes brochures regarding the title company’s services.
  • A hazard insurance company provides notepads, pens, or other office materials reflecting the hazard insurance company’s name.
  • A mortgage brokerage sponsors the hole-in-one contest at a golf tournament and prominently displays a sign reflecting the brokerage’s name and involvement in the tournament.
  • A real estate agent and mortgage broker jointly advertise their services in a real estate magazine, provided that each individual pays a share of the costs in proportion with his or her prominence in the advertisement.
  • A lender pays a real estate agent fair market value to rent a desk, copy machine, and phone line in the real estate agent’s office for a loan officer to prequalify applicants.
  • A title agent pays for dinner for a real estate agent during which business is discussed, provided that such dinners are not a regular or expected occurrence.

Not all referral arrangements fall under RESPA’s referral restriction. In fact, RESPA and its regulation feature a number of exceptions. Three examples are:

Exceptions to RESPA’s Prohibitions:

1. Promotional and Educational Activities are exempt as follows:

  • Settlement service providers can provide normal promotional and educational activities under RESPA.
  • These activities must not defray the expenses that the real estate broker/agent otherwise would have had to pay.
  • The activity cannot be in exchange for or tied in any way to referrals.

2. Payments in Return for Goods Provided or Services Performed are exempt as follows:

  • A real estate broker or agent must provide goods, facilities, and services that are actual, necessary, and distinct from what they already provide.
  • The amount paid to a real estate broker or agent must be commensurate with the value of those goods and services. If the payment exceeds market value, the excess will be considered a kickback and violates RESPA.
  • The payments should not be “transactionally based.” A payment for services rendered is transactionally based if the amount of the payment is determined by whether the real estate broker/agent’s services resulted in a successful transaction. Payments may not be tied to the success of the real estate broker/agent’s efforts, but must be a flat fee that represents fair market value.

3. Affiliated Business Arrangements, are exempt as follows:

  • Real estate brokers and agents are permitted to own an interest in a settlement service company, such as a mortgage brokerage or title company, so long as the real estate broker/agent:
  • Discloses its relationship with the joint venture company when it refers a customer to the mortgage broker or title company;
  • Does not require the customer to use the joint venture mortgage broker or title company as a condition for the sale or purchase of a home; and
  • Does not receive any payments from the joint venture company other than a return on its ownership interest in the company. These payments cannot vary based on the volume of referrals to the joint venture company.
  • The joint venture mortgage broker or title company must be a bona fide, stand-alone business with sufficient capital, employees, and separate office space, and must perform core services associated with that industry.4. Examples of Permissible Activities and Payments

Before you undertake any activity with a SSP or accept any payments, goods, or services from a SSP, you should speak with an attorney familiar with RESPA and make sure the activity complies with state and local laws. Some of these laws prohibit activities that are otherwise permissible under RESPA.

The MAR Legal Hotline answered some common questions about the scope of a Marketing Service Agreement:

Q.     What are marketing services agreements (“MSAs”), and do they violate the Real Estate Settlements Procedures Act (RESPA)?

A.      MSAs are formal relationships between settlement service providers in which the partners cross-market or co-market each other’s services. An example of an MSA is when a real estate company agrees to market the services of a particular mortgage company.  Not all MSAs are illegal; RESPA permits the marketing of other settlement services by another settlement service provider if it meets certain requirements. That said, in October 2015, the Consumer Financial Protection Bureau (CFPB), which has been active in initiating enforcement actions in this area, announced that they are, “deeply concerned about how marketing services agreements are undermining important consumer protections against kickbacks” and that, “any agreement that entails exchanging a thing of value for referrals of settlement service business likely violates federal law, regardless of whether a marketing services agreement is part of the transaction.” [full text of their guidance].  Therefore, these agreements are going to almost always be an improper referral fee, so anyone entering into a MSA will need to be exercise extreme caution. All MSAs should be carefully drafted by an attorney specializing in such agreements.

Q.     Are there any tips for brokerages considering entering into an MSA?

A.      Although MSAs may be lawful under RESPA if carefully structured to comply with the Act, violators of RESPA are subject to harsh penalties, including triple damages, fines, and even imprisonment. As such, the National Association of REALTORS® has compiled a list of the following “do’s and “don’ts”:


  • Be aware that RESPA permits payments for services performed by a broker or agent only if actual services are performed and the fee is fair market value for the services performed.
  • Memorialize an MSA in a written agreement that states in detail the marketing and advertising services to be performed and the fee to be paid in return for such services.
  • Ensure that marketing and advertising services identified in a written MSA are, in fact, performed.
  • Consider including a reporting and/or audit obligation in a written MSA that requires the service provider to document or otherwise provide evidence that services were performed.
  • Provide a disclosure to consumers notifying them of the MSA relationship.
  • Document how the parties arrived at the amount of the marketing fee and the determination of fair market value.
  • Consider engaging an independent third party to establish the fair market value of the marketing and advertising services.
  • Modify the amount of the marketing fee under an MSA only when objective changes are made to the services performed and/or other terms of the agreement.
  • Verify the basis for the increase or decrease in fee amount and document the objective reason(s) for the change.


  • Do not include “services” in the MSA that require a broker or agent to market a lender or title company directly to a consumer, like a sales pitch to a consumer, or distributing lender or title company brochures or other materials directly to a consumer.
  • Do not designate a settlement service provider as the broker’s or agent’s “preferred” company as part of the MSA.
  • Do not enter into exclusive MSAs such that the broker agrees to perform marketing and advertising services for only one lender or title company.
  • Do not accept fees that are in excess of the fair market value of the marketing services actually performed.
  • Do not base the amount of marketing fees on the volume of referrals or success of the referrals.
  • Do not accept fees under an MSA for allowing access to sales meetings, conducting customer surveys or creating monthly reports.
  • Do not make frequent changes to the fees paid under an MSA based on the volume or success of referrals or any other nonobjective criteria.
  • Do not enter into an MSA with a company that is an affiliate of the broker or agent.
  • Do not enter into an MSA with a month-to-month term.

Disclaimer: The DO’s and DON’Ts listed here are not all-inclusive and small variations in the facts can lead to different outcomes. Speak with a RESPA attorney to make sure you comply with all applicable laws. For more information on MSAs, please visit: http://www.realtor.org/topics/real-estate-settlement-procedures-act-respa