In October of last year, I wrote a post that summarized my opinion on the question of when and how an insurance agent may pay a fee to an unlicensed person for the referral of a potential customer to the agent by that person. That post was written from the perspective of whether and when the Georgia Insurance Code would permit the payment of such fees. It did not take into consideration, any other laws or regulations that may be applicable to the person to whom the referral fee was to be paid.
A recent call to the Free Legal Service program that I run for the members of the Independent Insurance Agents of Georgia made me think about such other laws and regulations. The caller mentioned that an agent he knew had been told that it was illegal to pay a referral fee to a real estate agent or mortgage broker under the Real Estate Settlement Procedures Act (“RESPA”). That Act prohibits both the payment and the acceptance of “any fee, kickback, or Thing of Value” in connection with “business incident to or a part of a real estate settlement service involving a federally related mortgage loan.” The criminal penalty for the violation of this prohibition is a fine of up to $10,000 and up to one year in prison, and the civil penalty is payment of three times the amount charged the borrower for the settlement service in question, plus attorney fees and other costs of litigation. Both the payer and the recipient of a prohibited referral fee are subject to these penalties.
The RESPA prohibition on fees, kickbacks, and things of value applies only to residential mortgage loans for real property designed principally for “the occupancy of from one to four families.” It also applies only to services that are “incident to or a part of” the settlement of such loans. The statute refers specifically to title insurance and services performed by real estate agents or brokers as being covered by this prohibition. Nothing is said in the statute or regulations about the provision of property and casualty or any other kind of insurance to the borrower of a covered loan.
However, if the existence of such other insurance coverage is required by the lender of a covered loan in order for the loan to be “settled”, a good argument can be made that the provision of such insurance is “incident to or a part of” the settlement of the loan. If a charge for the cost of such insurance is included on the settlement statement for the loan, this good argument becomes a convincing argument. For an agent who is considering paying a referral fee to real estate agents, mortgage brokers, or lenders for the names of home buyers who may need property and casualty or other insurance coverages to obtain a loan, it would be a good investment to pay an attorney for a legal opinion on whether the payment of such a fee is prohibited under RESPA.
For a referral fee arrangement with any other person, it would be a good idea to ask that person if their activities are subject to any laws or regulations that may prohibit the payment of such fees. As the above makes clear, just because it may be legal under the Georgia Insurance Code to pay a referral fee does not mean it’s permissible under all other laws and regulations.