Are Affinity Program Rebates Illegal?

PHH Challenges Mississippi Prohibition

May 1, 1997

A legal battle is brewing in Jackson, Miss., over consumer rebates offered through real estate affinity programs.

The outcome could influence affinity programs in other parts of the country.

At issue is an amendment to the rules of the Mississippi Real Estate Commission that, in effect, prohibits brokers from participating in affinity programs that pay consumer rebates. The amended rule went into effect last Sept. 13.

One of the nation's big relocation companies, PHH Real Estate Services Corp., headquartered in Danbury, Conn., has filed a lawsuit in federal court in Jackson challenging the commission's action.

PHH claims that the state regulation is preempted by the federal Real Estate Settlement Procedures Act and that RESPA permits such consumer rebates. PHH also claims that the commission failed to give adequate notice and that the rule is an attempt "to unreasonably suppress competition and to restrain trade" by protecting independent realty companies from competition from brokers affiliated with national affinity programs.

The Mississippi rule says, in part, that "no licensee shall knowingly pay a commission or other compensation to a licensed person knowing that licensee will in turn pay a portion or all of that which is received to a person who does not hold a real estate license."

PHH markets several affinity programs that offer either cash rebates or gifts in the form of frequent flier miles to consumers, according to court papers. Two of the affinity groups that PHH has agreements with are USAA Relocation Services Inc. and American Airlines/Sabre. Both of those organizations routinely promote the availability of a cash rebate, discount, or gift for consumers who use PHH's services.

PHH had sought an injunction to prevent the rule from going into effect, but it was turned down. PHH later filed an amended request, which is still pending.

An analyst for the NATIONAL ASSOCIATION OF REALTORS® notes that while some states have regulations that prohibit sharing all or part of a real estate commission with an unlicensed person, it was unclear if the licensed person who receives a share of the commission can then turn around and share a part of it, in the form of a rebate, with a buyer or seller. Each state interprets its regulations differently, the analyst says.

John W. Neelley, administrator of the Mississippi Real Estate Commission, says the issue is strictly a matter of enforcing state law that clearly prohibits the paying of a rebate to an unlicensed person. "We have no problem with a consumer renegotiating a commission. But this is something different."

Notice: The information on this page may not be current. The archive is a collection of content previously published on one or more NAR web properties. Archive pages are not updated and may no longer be accurate. Users must independently verify the accuracy and currency of the information found here. The National Association of REALTORS® disclaims all liability for any loss or injury resulting from the use of the information or data found on this page.