On January 17, the Pennsylvania Attorney General filed a civil enforcement action in the U.S. District Court for the Eastern District of Pennsylvania against a group of mortgage brokers and their manager, alleging that they operated an unlawful referral scheme in violation of the Real Estate Settlement Procedures Act (RESPA), the Consumer Financial Protection Act (CFPA), and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.

According to the complaint, the defendants offered real estate professionals a mix of financial incentives—such as discounted shares in a joint venture mortgage company, event tickets, and luxury meals—in exchange for directing clients to affiliated mortgage brokerages. These referral arrangements were not disclosed to homebuyers.

The Attorney General alleges that the defendants:

The lawsuit seeks injunctive relief, restitution, civil penalties, and recovery of attorneys’ fees.

Putting It Into Practice: This state enforcement continues the trend of states ramping up regulation and enforcement of financial services companies (previously discussed here and here). As certain states continue to align themselves with the CFPB’s January recommendations encouraging states to adopt and apply the “abusive” standard under the CFPA (previously discussed here), we expect to see more states ramp up their consumer financial protection efforts.

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