Washington DC
09 February 2018
Reporter: Ned Holmes

DC Court of Appeals finds RESPA doesn’t prohibit captives

The DC Court of Appeals has reinstated the October 2016 three-judge panel’s findings that the Real Estate Settlement Procedures Act (RESPA) does not prohibit captive reinsurance arrangements.

The decision provides the mortgage industry with much-needed clarity allowing it to continue to pay captive reinsurers at a reasonable rate without violating Section 8 of RESPA.

The Consumer Financial Protection Bureau (CFPB) took over responsibility for enforcing RESPA from the Department of Housing and Urban Development (HUD) in 2011.

HUD had perceived RESPA’s anti-tying and kickback prohibitions, Section 8(c), as permitting captive reinsurance arrangement in exchange for “bona fide payments”, which prohibited such arrangements with the mortgage insurers if the insurer paid the reinsurer more than the “reasonable market rate”.

In 2014, CFPB initiated and won an administrative enforcement proceeding against US mortgage lender PHH, alleging they violated Section 8 when the firm paid a reasonable market rate to its captive reinsurer, defining the payments as “kickbacks”.

PHH appealed to the DC Court of Appeals and in October 2016 a three-judge panel ruled in PHH’s favour, finding that the CFPB’s structure was unconstitutional and their definition of Section 8(c) was incorrect.

The CFPB appealed the result to the DC Circuit Court, which ruled en banc on 31 January 2018 that the CFSB’s structure was constitutional, but their interpretation of section 8(c) was incorrect.

The Circuit Court’s stance on section 8(c) clarified that the mortgage industry can continue to pay reasonable market rates to captive reinsurance agencies without violating RESPA.

In addition, the findings should reassure the industry that it can rely on administrative opinions and guidance without being held retroactively liable for violating new interpretations.

More news
The latest news from Captive Insurance Times
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
Funds approved for ‘crumbling foundations’ captive
21 February 2018 | Connecticut | Reporter: Ned Holmes
The Connecticut State Bond Commission has approved $350,000 to set up a non-profit captive insurer, which is a state government solution for an issue impacting a reported 5000 homes in the state
Crawford launches workers compensation service
20 February 2018 | Atlanta | Reporter: Ned Holmes
Crawford & Company has expanded its service portfolio in Australia to include workers’ compensation.
Kansas to alter captive laws
20 February 2018 | Kansas | Reporter: Ned Holmes
The Kansas state government has submitted a bill to update and modernise captive insurance laws in the state
ZIC and Zale Life ratings downgraded
19 February 2018 | New Jersey | Reporter: Ned Holmes
A.M. Best has downgraded the financial strength rating of Zale Indemnity Company (ZIC) and its wholly-owned subsidiary, Zale Life
Tax shelter micro captives bubble set to burst, says Adkisson
16 February 2018 | Las Vegas | Reporter: Ned Holmes
The tax shelter micro captive bubble is set to burst in 2018, resulting in large numbers of such companies to surrender their licenses, as many did last year, predicts Jay Adkisson, partner at Riser Adkisson
Leadership shuffle at Captive Resources
15 February 2018 | Illinois | Reporter: Ned Holmes
Group captive insurance consultant Captive Resources has appointed former Zurich North America CEO Mike Foley to its board of directors
Vermont proposes branch captive legislation updates
14 February 2018 | Montpelier | Reporter: Becky Butcher
Vermont has proposed to update its branch captive legislation to require branch captives to designate the state’s commissioner of the Department of Financial Regulation as its agent for service of process