Lobbying Sheet: RESPA\TILA "Reform"
May 1, 2002
Ann vom Eigen, Legislative and Regulatory Counsel
Members of the American Land Title Association ("ALTA") ask Congress to carefully examine changes to Real Estate Settlement Procedures Act ("RESPA") and Truth in Lending Act ("TILA") that limit consumer choice of real estate settlement services, and provide exemptions from RESPA?s anti-kickback provisions for "bundled" or "packaged" services. ALTA supports settlement services legislation or regulations that promote consumer choice and empowerment and require meaningful disclosure. ALTA recognizes that the consumer has a separate benefit or interest in the selection of the product or service and the pricing of each component in the package. "Packaging" of loan settlement services presently occurs in the marketplace. However, some proposed Section 8 changes, coupling exemptions from referral fee prohibitions and liability, could limit consumer choice and destroy the availability, quality, and price of real estate services.
Consumers are now more sophisticated shoppers for mortgage credit and other real estate services than those consumers RESPA and TILA were designed to protect. Falling interest rates promoted residential sales and refinancing, and technology has facilitated consumer access to information on price and service, and changed service delivery. RESPA and TILA therefore no longer fit the real estate transaction. The title industry, consumer groups, and lenders are developing reforms, and HUD and the Federal Reserve System are also devising options. One proposed solution, effectively mandating "packaging of settlement services" by lenders, could, particularly in the sale market, dramatically limit consumer?s access to and choice of services.
Preventing Consumer Choice: Providing an exemption from Section 8 for packaging discourages shopping. A Gallup poll shows that almost 50of consumers now personally shop for such settlement services as owner?s title insurance. However, packaging of loan settlement services can limit consumer choice if a consumer believes he might not get mortgage credit unless he purchases the provider?s settlement services.
"Blind" packages discourage comparison-shopping. Many packaging proposals deny the consumer information about the specific services, providers, or prices that make up the settlement package. Consequently, consumers cannot compare apples to apples.
Destroying Real Estate Services: Packaging of settlement services can be anti-competitive, lower the quality of service and the number of service providers, and may not result in decreased costs to the consumer. An exemption from Section 8 of RESPA allowing packagers to charge consumers a fee for packaging would institute a new charge. Packaged service providers would have to compete to get into a limited number of packages, and might be forced to cut back the service they provide if packagers force down costs. Small businesses might not be able to compete at all. Even if packagers demand lower charges from service providers, discounts may not be passed on to consumers. Moreover, for regulated services where packagers can?t negotiate a lower cost, a Section 8 exemption would invite solicitation of kickbacks and referral fees with no benefit to consumers.
Inhibiting Developing Technology: Schemes effectively mandating bundling of services could hinder development of more efficient markets. Internet marketing for mortgages and ancillary services exists, automated mortgages are available, and technology may soon provide new channels. Packaging may discourage alternative delivery systems.