Section 8 / Gifts Promo Activity – 2. What conditions does Regulation X establish for gifts and promotions to be “normal promotional and educational activities” allowed under RESPA?

Compliance > Regulation X - RESPA
Q:   What conditions does Regulation X establish for gifts and promotions to be “normal promotional and educational activities” allowed under RESPA?
 
A:   Regulation X allows “normal promotional and educational activities” directed to a referral source if the activities meet two conditions:
  • The activities are not conditioned on referral of business; and
  • The activities do not involve defraying expenses that otherwise would be incurred by the referral source.
 
12 CFR § 1024.14(g)(1)(vi).
 
Whether a particular item or activity meets each of these two conditions is a factual question.
 
The first condition is that normal promotional and educational activities must not be conditioned on referral of business. Factors that are relevant to whether the first condition is met may include the following:
 
  • Whether the item or activity is targeted to referral sources. If an item or activity is targeted narrowly towards prior, ongoing, or future referral sources, this could indicate the item or activity is conditioned on referrals of business. For example, if a promotional item is provided only to a limited set of settlement service providers who also happen to be current referral sources or an intentionally targeted group of future referral sources, this may suggest that the recipient is receiving the promotional item because of past or future referrals and, thus, the promotional item may be conditioned on referrals. If, instead, a promotional item is provided to a broader set of recipients, such as the general public or all settlement service providers offering similar services in a given locality, then that may indicate that the promotional item is not conditioned on referral of business.
  • How often the item or activity is given to the referral source. If a referral source is routinely and frequently provided with an item or included in an activity, and particularly if that referral source is provided with the item or included in the activity more often than other persons, this could indicate the item or activity is conditioned on referrals.
The second condition is that normal promotional and educational activities must not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement services or business incident thereto. Factors that may be relevant to whether the second condition is met may include the following:
 
  • Whether the item or activity involves a good or service that the referral source would otherwise have to pay for themselves. If, for example, a promotional activity involves paying for mandatory continuing education expenses, certifications, licenses, or other items that the referral source would otherwise need to pay for on their own, the promotional item or activity is more likely to defray expenses. Similarly, if the activity involves paying for the referral source’s office supplies branded with the referral source’s name, contact information, or logo, this is more likely to defray expenses of the referral source. But if the activity involves providing the referral source with office supplies featuring the name, contact information, or logo of the entity providing the supplies, this is less likely to defray expenses, since it is unlikely that the referral source would otherwise use its own funds to purchase office supplies featuring the name and information of another entity.
If the particular item or activity does not meet either of these conditions, it is not a “normal promotional or educational activity” meeting the conditions in Regulation X, 12 CFR § 1024.14(g)(1)(vi). See RESPA Section 8: Gifts and Promotional Activities FAQ 3 below for discussion of “normal promotional or educational activities” as applied to examples.
 
 
This Q&A was based on information contained in the Consumer Financial Protection Bureau’s (CFPB) Real Estate Settlement Procedures Act FAQs that were issued in October, 2020, which may be updated from time to time.  This CFPB issuance may be found here:  https://www.consumerfinance.gov/policy-compliance/guidance/mortgage-resources/real-estate-settlement-procedures-act/real-estate-settlement-procedures-act-faqs/#respa-section-8-general
 

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