Opinion ID: 3015370
Heading Depth: 3
Heading Rank: 2

Heading: Markups

Text: The second issue we consider is whether Section 8(b) allows a cause of action for markups. The textual interpretation urged by Santiago is that the phrase “No person shall give and no person shall accept . . . ” in Section 8(b) operates to create two separate prohibitions: (1) giving a portion of charges and (2) accepting a portion of charges. Thus, according to this reading, a settlement service provider who marks up the cost of a service provided by a third party vendor and keeps the marked up portion of the charge is violating the second prohibition by accepting a portion of the charge for services the settlement service provider did not perform. This interpretation was accepted in Sosa v. Chase Manhattan Mortgage Corp., 348 F.3d 979, 983 (11th Cir. 2003) (“The ‘and’ in subsection 8(b) therefore operates to create two separate prohibitions . . .. ”). This interpretation is also supported by HUD. GMAC urges an alternate reading of Section 8(b). This interpretation reads the phrase “No person shall give and no person shall accept” as prohibiting one activity, in which one party gives and one party accepts a fee. The situation described by this interpretation is essentially a “kickback” where, for example, a settlement service provider arranges for a consumer to use the services of a third party vendor and that vendor then shares a portion of the amount charged to the consumer with the settlement service provider. This is the 9 interpretation accepted in Haug v. Bank of America, 317 F.3d 832, 836 (8th Cir. 2003) (Section 8(b) is an anti-kickback provision that unambiguously requires at least two parties to share a settlement fee in order to violate the statute.”), Boulware v. Crossland Mortgage Corporation, 291 F.3d 261, 266 (4th Cir. 2002) (“The use of the conjuctive ‘and’ indicates that Congress was clearly aiming at an exchange or transaction, not a unilateral act.”), and Krzalic v. Republic Title Co., 314 F.3d 875, 879 (7th Cir. 2002) (“The statutory language describes a situation in which A charges B (the borrower) a fee of some sort, collects it, and then either splits it with C or gives C a portion or percentage . . . of it.”). Both the textual interpretation supported by Santiago and HUD and the one supported by GMAC are plausible readings of the statutory language. This conclusion is supported by the fact that under either reading of the statute, the parties would be in the same economic position. In a kickback arrangement, the consumer would give the settlement service provider $100 for a service, the mortgage service provider would give the third party vendor $100 for that service, and the third party vendor would return $20 to the settlement service provider as a kickback for the referral of service. In a markup arrangement, the consumer still gives the settlement service provider $100 for a service, but the settlement service provider keeps $20 and gives the third party vendor $80 for the service. In both scenarios, the borrower has been charged $100, the settlement service provider has earned $20 for a service it did not provide, and the third party vendor has earned $80 for a service it did provide. The context in which Section 8(b) is found further 10 supports the conclusion that markups are included in the statute. The title of Section 8 of RESPA is “Prohibition against kickbacks and unearned fees,” and Section 8(a) is titled “Business referrals,” and prohibits the acceptance of “any fee, kickback or thing of value” while Section 8(b) is titled “Splitting charges,” and prohibits the acceptance of “any portion, split, or percentage of any charge.” Thus, GMAC’s interpretation that Section 8(b) applies only to kickbacks is belied by the use of the term “kickback” in Section 8(a) and not in Section 8(b). This use of language suggests that Section 8(b) is meant to provide for a situation other than kickbacks. Further, a reading of Section 8(b) that allows a cause of action for markups is consistent with the title of Section 8 that prohibits both kickbacks and unearned fees. Our conclusion that Section 8(b) allows a cause of action for unearned markups does not fully resolve the issue of whether the markups imposed by GMAC violated the law. GMAC may argue that it provided services ancillary to those provided by the third party vendor and that these services justify the additional charge. This argument might raise the issues of whether such ancillary services were nominal, whether the amount of any markup had to be reasonable in light of the additional services provided, or whether these extra services were already included in some other settlement service charge paid by the borrower. Regulation X at 24 CFR § 3500.14(c) specifically bars charges for “nominal services” and states that “duplicative fees” are unearned fees which violate the law. The parties have not fully briefed these issues, and the state of the record is inadequate for us to resolve them. These issues will have to be decided by the 11 District Court on remand. In sum, we conclude that the District erred in holding that Section 8 does not provide a cause of action for markups. We will remand this claim to the District Court.4 4 Although we have determined that the statutory text of RESPA clearly allows a cause of action for markups, but see Kruse et al. v. Wells Fargo Home Mortgage, Inc., et al., 383 F.3d 49 (2d Cir. 2004) (holding that the text of Section 8(b) was ambiguous as to markups because the interpretations urged by both sides were reasonable but that Chevron deference was warranted because Statement of Policy 2001-1 was promulgated in accordance with the legislative delegation of authority), it is worth noting that, even if we had found the text ambiguous, deference to HUD’s interpretation would be appropriate. Deference to an agency’s interpretation can be either mandatory, under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984), or persuasive, under Skidmore v. Swift & Co., 323 U.S. 134, 65 S. Ct. 161, 89 L. Ed. 124 (1944). In this case, because we would find HUD’s interpretation to be persuasive under Skidmore, we would not need to reach whether Chevron deference is warranted. See Bonneville International Corp. v. Peters, 347 F.3d 485, 490 (3d Cir. 2001) (“Because we find that the [agency’s] interpretation is persuasive even under the less demanding standard of Skidmore deference, we need not go on to parse out whether Chevron deference should, in fact, be accorded the [agency’s] regulation here.”) “An agency interpretation may merit some deference whatever its form, given the specialized experience and broader 12