Regulators Catching Up to the Crooks
Long-time readers of my musings know the attention I gave to the abuse of the "affiliated business arrangement" that has become so prevalent in the Minnesota real estate industry. Well, I have some news to share today about how some of the culprits have been caught by by federal and state officials.
As reported by RESPA News Monthly, "Members of a Minnesota
The companies have shut down their operations, their Department of Commerce licenses have been revoked, and they have to pay a $60,000 civil penalty. For those that like all the finer details you can read the consent order here.
Back in 1974, RESPA (Real Estate Settlement Procedures Act) was passed as a measure of consumer protection. The goals were to:
- help consumers become better shoppers for settlement services and
- eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services.
This legislation helped cure the ills of that era but leave it to the "creative" business person to "structurualize" the kickbacks into a sham business arrangement; the Affiliated Business Arrangement A(ABA).
What is funny is that the ABA was first referred to as a Controlled Business Arrangement. Well, the ominous tone of the word control sure did not sit well with those that wanted to slip this new fangled structure past unwitting consumers that they lobbied hard to get the formal name of these arrangements changed from "controlled" to "affiliated." Now, that sounds much more palatable! Doesn't it?
The news of the unwinding of the financial scheming within the real estate and financial markets is continuing to unfold and it is also bringing the attention of federal and state regulators. Remember the class action lawsuit against Coldwell Banker Burnet we discussed many months ago? Well, that lawsuit is not even on the ABA abuse. No, that lawsuit goes up a level and addresses the "fiduciary responsibility" a Realtor undertakes for their client.
What has been sickening to me, a person on the front lines of this industry, is to see the pure greed and lack of holding professions to higher standards of advice and performance. When we systemize financial incentives in a way that prevent objective advice how can we be surprised by the rampant abuse and disconnect felt by the consumer.
Long-time clients of mine know that since day one when I started my business 7 years ago that I refused to partake in these affiliated business arrangements. They just don't jive with my philosophy of business.
It is nice to finally see those that chose the other path feel the consequences of those actions. I'm sure the customers who all paid too much along the way will feel the same!
Comments