Opinion recap: Court rebukes HUD in mortgage-fee dispute
on May 25, 2012 at 1:00 pm
After a discursive oral argument consumed by topics not before it, the Court’s resolution of Freeman v. Quicken Loans, Inc. was as straightforward as can be: a brisk unanimous decision from Justice Scalia. The case involves a minor provision of the Real Estate Settlement Procedures Act (RESPA) that bars kickbacks and referral fees. The issue in Freeman is whether that provision extends to an unearned fee charged by the originator. The borrower Freeman argues that the plain language of the statute applies whenever a fee is “give[n]” for services that are not provided, even if the originator retains the whole fee. The lender Quicken argues that the statute applies only when the fee is shared between two parties (the classic “kickback” situation).
The strongest thing Freeman had on its side was HUD’s consistent view that the statute’s prohibition on “giv[ing] and * * * accept[ing] any portion, split, or percentage of any charge * * * other than for services actually performed” applies even when the charge is not split. Unfortunately for Freeman, HUD also has taken the view that the statute applies even when some services are rendered, if the charge exceeds the “reasonable value” of the services. That aggressive view starkly undermined whatever credibility HUD might have had on the issue before the Court. Justice Breyer’s virulent opposition at the oral argument to the idea that RESPA could be interpreted to regulate prices is reflected in the Court’s opinion: although the issue is not before it, the Court went out of its way to characterize HUD’s “reasonable value” interpretation as “manifestly inconsistent” with the statute and a “palpable overreach” by HUD.
The Court also emphasized the oddity that Freeman’s view, at least potentially, left consumers open to criminal liability whenever they “give” an unearned fee. Justice Breyer had chided the Solicitor General’s representative at oral argument for failing to address this argument in the government’s brief. The failure to attend to the point directly cost the government sorely in the end, because the Court found this point particularly telling. It dismissed out of hand the idea that prosecutorial discretion could narrow the practical reach of the statute, emphasizing that “prosecutorial discretion is not a reason for courts to give improbable breadth to criminal statutes.”
Against that backdrop, the Court’s treatment of the statutory question was predictably cursory. The Court acknowledged that a “portion” could refer to a one hundred percent share – with no splitting – but argued that the phrase “normally” refers to a share less than one hundred percent. And given the odd consequences of the use of “portion” as including the entirety of the fee, the Court concluded that the statute would bear only one reading: the statute applies only to cases of fee-splitting.
Perhaps the most significant jurisprudential aspect of the opinion is that the Court once again managed to duck the question of what level of deference is appropriate for informal agency documents like the HUD policy statement at issue here. Because HUD’s view “goes beyond the meaning that the statute can bear,” the Court explained that it would have rejected HUD’s position even if it had accorded full Chevron deference to it.
PLAIN ENGLISH SUMMARY: The Court this week in Freeman v. Quicken Loans, Inc. resolved an argument about the fees lenders charge for mortgage loans. The Court held that unearned fees – fees for which lenders provide no services – violate federal law only if the fees are split between two companies. This may seem strange, but the Court said that the law Congress passed was only about fee splitting. To control the level of fees that a single bank charges, Congress would have to be more specific.
[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, represents the petitioners in the case. The author of this post, however, is not involved in the case.]