Section 8 / Gifts Promo Activity – 3. What are examples of “normal promotional and educational activities” meeting the conditions in Regulation X?

Compliance > Regulation X - RESPA
Q:   What are examples of “normal promotional and educational activities” meeting the conditions in Regulation X?
 
A:   Regulation X allows “normal promotional and educational activities” that are not conditioned on the referral of business and do not involve “defraying” expenses otherwise incurred by that recipient who is in a position to make a referral. 12 CFR § 1024.14(g)(1)(vi).
 
Whether a particular item or activity meets the conditions in Regulation X for “normal promotional and educational activities” depends on the facts and circumstances. For example:
 
  • A settlement agent hosts a one-time-only drawing for a mini basketball set (backboard, rim, net, and ball). The settlement agent includes an announcement of the drawing in an email to all previous customers and all loan originators in the city summarizing the settlement agent’s services and providing the agent’s contact information. The entries to the drawing are automatically made for every previous customer and loan originator in the city, regardless of whether the prior customer or loan originator has made or will make a referral to the settlement agent. The agent also includes a drawing entry submission form on their website. The drawing is more likely to meet the conditions for a “normal promotional and educational activity” under Regulation X because 1) the drawing entry is not conditioned on referrals and 2) the prize would not defray expenses as the basketball set is not an expense that persons in a position to refer business to the settlement agent would otherwise incur.
 
  • A title company hosts a continuing education course for real estate agents who must meet mandatory continuing education requirements to maintain their license. The title company charges a course admission fee equivalent to the fair market value of the course and invites all of the local real estate agents, regardless of their status as referral sources. The real estate agents pay for their own admission to the course. Under these facts, the activity is more likely to meet the conditions for a “normal promotional and educational activity” under Regulation X because 1) the course admission is not provided conditioned on referrals and 2) the course admission fee is the fair market value, meaning the title company is not defraying the real estate agent’s expenses for the course.
 
  • A title company routinely hosts free seminars on recent real estate market developments. The seminars are open to the public, and they are advertised to all of the area’s real estate agents, regardless of their status as referral sources. The seminars are more likely to meet the conditions of a “normal promotional and educational activity” under Regulation X, because 1) admission to the courses are not conditioned on referrals and 2) the courses are not defraying expenses that otherwise would be incurred by persons in a position to make referrals, as they are routinely provided free of charge for everyone, not just referral sources.
 
However, with slight changes to these fact patterns, the activities can fail to meet the conditions for “normal promotional and educational activity” under Regulation X. For example:
 
  • A settlement agent’s drawing for a mini basketball set where the agent’s announcement and promotion email is sent only to select mortgage loan originators, who are given drawing entries for each referral the loan originator makes directing others to the settlement agent is likely not a “normal promotional or educational activity” meeting the conditions established in Regulation X. This is because the facts and circumstances indicate the opportunity to win the mini basketball set, or the mini basketball set itself, is conditioned on the referral of business, given that the persons in the drawing pool are only those persons who made referrals and also that the number of entries (which affect the odds of winning the mini basketball set) are based on the number of referrals. In fact, as a reminder, this may implicate a RESPA Section 8(a) violation, as discussed in RESPA Section 8: Gifts and Promotional Activity FAQ 1, above.
 
  • A title company’s continuing education course that real estate agents use to meet their license requirements, for which the admission fee is waived if the real estate agent makes a specified number of referrals, is likely not a “normal promotional or educational activity” meeting the conditions established in Regulation X. This is because the course admission fee waiver is conditioned on referrals to the title company (which could also implicate a RESPA Section 8(a) violation), and the fee waiver is defraying the real estate agent’s expenses. Similarly, if the title company opens the same continuing education course to the public and charges an admission fee, but waives the fee for all real estate agents (regardless of referrals), the activity is still likely not a “normal promotional or educational activity” meeting the conditions established in Regulation X. This is because the course fee waiver is defraying expenses that the real estate agents otherwise would incur, as the course is meeting their license requirements and the fee waiver reduces their license-related expenses.
For more information about the conditions for meeting the “normal promotional and educational activities” under Regulation X, see RESPA Section 8: Gifts and Promotional Activities FAQ 2. For more information about the application of RESPA Section 8(a) to promotional or educational activities, see RESPA Section 8: Gifts and Promotional Activities FAQ 1.
 
 
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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