Much has been written about the Consumer Financial Protection Bureau’s recent “Policy Statement on Abusive Acts or Practices,” in which the Bureau analyzed the prohibition on abusive conduct in the Consumer Financial Protection Act of 2010 (CFPA). In response to the statement’s publication in the Federal Register, comments were submitted by banks, credit unions, debt collectors, and others. But the Bureau’s policy statement should be of particular interest to another class of persons: real-estate agents who participate in joint ventures with mortgage or title companies.
Mortgage and title companies arrange joint ventures as a means of rewarding real-estate agents for referrals. Real-estate agents enter into these joint ventures because they allow the agents to share in the profits derived from providing mortgage and title services to the agents’ customers.
I. The CFPA applies to these real-estate agents.
Ordinarily, the CFPA’s prohibition on abusive conduct might be of little concern to real-estate agents, as the CFPA applies only to “covered persons” and “service providers,” and real-estate agents are not “covered persons” or “service providers,” at least to the extent that they act as agents or brokers for buyers and sellers of real property. Moreover, § 1027(b) of the CFPA prohibits the Bureau from exercising “any rulemaking, supervisory, enforcement, or other authority . . . with respect to a . . . real estate agent,” unless the agent is “engaged in an activity of offering or providing any consumer financial product or service.”
But when real-estate agents enter into joint ventures with mortgage or title companies, they expose themselves to the CFPA. The joint ventures, themselves, are “covered persons” under the CFPA because they offer credit or title services. And joint-venture partners who materially participate in the affairs of their covered-person entity are “related persons” and are thus deemed to be “covered persons.” One way that real-estate agents “materially participate” in the affairs of their joint ventures is by referring their real-estate customers to the joint ventures for mortgage or title services. This same conduct might qualify a real-estate agent as “service provider,” which the CFPA defines to mean “any person that provides a material service to a covered person.”
Because the Bureau—or a state attorney general or other regulator, for that matter—might conclude that the CFPA applies to real-estate agents who participate in joint ventures, agents should be wary of the Bureau’s expansive policy statement, particularly its discussion on “reasonable reliance.”
II. Consumers reasonably rely on their real-estate agents.
As the Bureau noted, the CFPA defines abusiveness to include taking unreasonable advantage of “the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.” The Bureau explained that
sometimes people are in a position in which they have a reasonable expectation that an entity will act in their interest to make decisions for them, or to advise them on how to make a decision. Where people reasonably expect that a covered entity will make decisions or provide advice in the person’s interest, there is potential for betrayal or exploitation of the person’s trust. Therefore, Congress prohibited taking unreasonable advantage of reasonable consumer reliance.
The policy statement identified two ways that a government enforcer might establish reasonable reliance. “First, reasonable reliance may exist where an entity communicates to a person or the public that it will act in its customers’ best interest, or otherwise holds itself out as acting in the person’s best interest.” “Second, reasonable reliance may also exist where an entity assumes the role of acting on behalf of consumers or helping them to select providers in the market.”
A. Buyers reasonably rely on their agents to be trusted intermediaries.
Real-estate buyers, in particular, often rely on their agents for help with selecting “providers in the market.” A buyer might ask their agent to recommend a mortgage or title company, for example. “In these situations,” the Bureau noted, “the entity [here, the real-estate agent], acting as an intermediary, can function as a broker or other trusted source that the person uses in selecting, negotiating for, or otherwise facilitating the procurement of consumer financial products or services provided by third parties.” In the Bureau’s view, “people should be able to rely on the entity to do so in a manner that is free of manipulation,” and those “that engage in certain forms of steering or self-dealing may be taking unreasonable advantage of the consumers’ reasonable reliance.”
Real-estate agents who refer their customers to the agents’ own joint ventures risk violating the CFPA’s prohibition on abusive conduct in a number of ways. For example, when an agent refers their real-estate customer to a mortgage broker, the consumer might reasonably believe that the agent is acting in the consumer’s interest—i.e., referring the consumer to someone who will help the consumer get the best mortgage for the consumer—while the agent might be acting in their own interest by steering the consumer to a mortgage company that the agent partly owns and from which the agent would share in profits derived from providing a mortgage to the referred consumer. Might the Bureau or a state attorney general consider this to be “steering or self-dealing” that is “abusive” under the CFPA?
B. Sellers reasonably rely on joint-venture title companies to be neutral third parties.
And what about when an agent refers their customer, who is looking for title services, to the agent’s own joint venture? In most jurisdictions, a title agent is a third-party neutral, with fiduciary obligations to both the seller and the buyer. Indeed, as the Arizona Association of REALTORS® recently observed, “[a] title company is a neutral third party employed to insure the title to the home and issue title-insurance policies to the buyer and mortgage lender.” The title company’s duties include researching “the history of the property to identify potential problems, claims, or discrepancies that may interrupt the transaction.” Because “the title company is charged with formally transferring ownership from the seller to the buyer, it is critical that they serve in an impartial manner.”
But when the title company is a joint venture between a sponsoring title company and the buyer’s real-estate agent, it lacks the disinterestedness that the law requires, potentially to the detriment of the seller, who, like the buyer, is a “consumer,” entitled to the CFPA’s protections.
Some states, undoubtedly recognizing this conflict of interests, have enacted laws that preclude real-estate agents from receiving compensation or profits from a title-company joint venture to which they refer their real-estate customers. Arizona law, for example, provides that “no title insurance agent shall pay or give to any . . . person who is acting as agent . . . of the owner . . . or of the prospective owner . . . of the real property[,] either directly or indirectly, any commission or any part of its fees or charges[,] including . . . fees for escrow services performed by a title insurer or title insurance agent, or any other consideration or valuable thing, as an inducement for, or as compensation for, any title insurance business.” New York law likewise makes it unlawful for a “title insurance agent . . . to . . . pay or give to . . . any person . . . acting as agent . . . of the owner . . . or the prospective owner . . . of the real property[,] either directly or indirectly, any . . . consideration or valuable thing, as an inducement for, or as compensation for, any title insurance business.” New York also makes it unlawful for “any person . . . acting as agent . . . of the owner . . . or of the prospective owner . . . of the real property [to] knowingly receive, directly or indirectly, any such . . . consideration or valuable thing.” And the District of Columbia Code provides that “[a] title insurer or other person shall not give or receive, directly or indirectly, any consideration for the referral of title insurance business or escrow or other service provided by a title insurer.”
C. Disclosing the conflict is unlikely to dissuade the Bureau from bringing a CFPA claim for abusive conduct.
None of these state laws makes an exception for when real-estate agents disclose their conflicts, and it is unlikely that an agent’s disclosure of a conflict would dissuade the Bureau from enforcing the CFPA. This is particularly true when the purported disclosure is made, as it often is, after the referral—for example, when it is buried among the dozens of pages that the parties must sign when ratifying the purchase agreement—and in language that is impenetrable to the average consumer. Indeed, the Bureau has previously brought claims for abusive conduct despite disclosures that consumers had little time to review and were unlikely to understand. And the Bureau’s policy statement cites favorably to a Treasury Department report that observed that consumers “may retain faith that [an] intermediary is working for them and placing their interests above his or her own, even if the conflict of interest is disclosed.” In those situations, the Bureau seems to believe, “consumers may reasonably but mistakenly rely on advice from conflicted intermediaries.”
Real-estate agents who participate in joint ventures subject themselves to the authority of the Consumer Financial Protection Bureau, state attorneys general, and other state regulators, all of which may enforce the CFPA’s prohibition on abusive conduct. And given the Bureau’s aggressive interpretation of this statute, real-estate agents participating in joint ventures might reconsider their involvement, particularly in states like Arizona and New York and in the District of Columbia, where existing laws already forbid joint-venture title companies from compensating real-estate agents.
 CFPB, Policy Statement on Abusive Acts or Practices, (April 3, 2023), https://www.consumerfinance.gov/compliance/supervisory-guidance/policy-statement-on-abusiveness/.
 Statement of Policy Regarding Prohibition on Abusive Acts or Practices, 88 Fed. Reg. 21,883 (Apr. 12, 2023), https://www.regulations.gov/document/CFPB-2023-0018-0001/comment.
 See 12 U.S.C. § 5536(a)(1)(B).
 See 12 U.S.C. § 5517(b).
 See 12 U.S.C. § 5481(6), (15)(A)(i) & (iii).
 See 12 U.S.C. § 5481(25)(C)(ii).
 See 12 U.S.C. § 5481(25)(B).
 CFPB v. D & D Mktg., CV 15–9692 PSG (Ex), 2016 WL 8849698 (C.D. Cal. Nov. 17, 2016) (holding that a company that provided leads to lenders could be a “service provider”).
 See 12 U.S.C. § 5481(26).
 See 12 U.S.C. § 5552(a)(1) (authorizing state attorneys general and regulators to enforce the CFPA).
 See 12 U.S.C. § 5531(d)(2)(C).
 88 Fed. Reg. at 21,889.
 Id. at 21,889–90.
 See, e.g., Straight v. Approved Fed. Sav. Bank, No. 05-5187, 2005 WL 1288091, at *2 (W.D. Wash. May 27, 2005) (“An escrow agent serves [as] a neutral depository for the monies and documents involved in a real estate deal.”); In re Davis, 172 B.R. 437, 452 (Bankr. D.C. 1994) (holding that “the settlement agent . . . had a fiduciary responsibility to each of the parties to the transaction”); Red Lobster Inns v. Lawyers Title Ins. Corp., 492 F. Supp. 933, 941 (E.D. Ark. 1980) (“Where a person acts as escrow agent for parties to a land sale, he becomes agent of both buyer and seller and this agency creates a fiduciary relationship.”), rev’d in part on other grounds, 656 F.2d 381 (8th Cir. 1981); Aranki v. RKP Invs., Inc., 979 P.2d 534, 536 (Ariz. Ct. App. 1999) (recognizing that “escrow agents . . . act as fiduciaries for buyers and sellers alike”); Donovan v. Kirchner, 641 A.2d 961, 969 (Md. Ct. Spec. App. 1994) (“The third party, or escrow agent, is uninterested in the transaction and acts as a fiduciary to both the grantor and the grantee.”); Zimmerman v. First Am. Title Ins. Co., 790 S.W.2d 690, 695 (Tex. App. 1990) (observing that “[a]n escrow agent is in a fiduciary relationship with the contracting parties” to a real-estate transaction); Wagman v. Lee, 457 A.2d 401, 404 (D.C. 1983) (acknowledging the “unique position” that an escrow agent occupies “in the ‘triangular’ relationship between purchaser and seller”) (citation omitted).
 See S. Drucker, “Disclosure of Common Ownership Interest Between Agent and Title Company,” Nov. 13, 2020, https://www.aaronline.com/2020/11/13/disclosure-of-common-ownership-interest-between-agent-and-title-company/.
 Ariz. Rev. Stat. § 20-1585.
 N.Y. Ins. Law § 6409(d).
 D.C. Code § 31–5031.15.
 CFPB v. Freedom Stores, Inc., 2:14-cv-643 (E.D. Va., filed Dec. 18, 2014), Compl. ⁋⁋ 51, 72–78, https://files.consumerfinance.gov/f/201412_cfpb_complaint_freedom-stores_va-nc.pdf.
 88 Fed. Reg. 21,883, 21,890 n.76 (citing to U.S. Department of Treasury, Financial Regulatory Reform, A New Foundation: Rebuilding Financial Supervision and Regulation 68 (June 2009), https://fraser.stlouisfed.org/title/financial-regulatory-reform-5123).