On August 29, the DC Attorney General's office announced settlements with four title insurance companies over their widespread use of illegal kickbacks in violation of DC's Consumer Protection Procedures Act (CPPA). Under the terms of the settlement, the title insurance companies are required to pay a combined total of $3,290,000.
The DC AG alleges that the title companies participated in a scheme offering real estate agents discounted ownership interests and lucrative profit-sharing in exchange for business referrals. Specifically, they provided real estate agents with exclusive and discounted investment opportunities, either in the companies themselves or in shell entities created to induce the real estate agents to generate business referrals, thereby increasing the companies' revenues. In return for these referrals, the agents received kickbacks, manifested as a share of the profits. Moreover, beyond profits derived from referrals, one company further compensated real estate agents for their participation in the scheme by organizing and hosting multiple yacht parties, aiming to ensure their continued loyalty and to incentivize future referrals.
These anticompetitive arrangements allegedly restricted homebuyers' ability to compare prices and services when purchasing title insurance and escrow services. As part of the settlement, all four companies agreed to discontinue the practice of providing real estate agents with consideration for referring title insurance business. They will either cease their title insurance operations in the District or divest real estate agents of their ownership interests in the shell companies.
Putting it into Practice: Both RESPA and D.C.'s CPPA prohibit kickbacks and other forms of compensation for the referral of title insurance and escrow business. However, while federal law allows for certain affiliated business arrangements that meet specific requirements, D.C. law is more stringent and does not have such an exception. Companies operating in the District should take note and adjust their compliance practices accordingly.
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