Real-estate lending rules, already one of compliance officers' biggest headaches, are about to get even more troublesome.
Under revised Real Estate Settlement Procedures Act rules, customers will have to sign a form before bankers are paid for making referrals to affiliates, such as mortgage banks or insurers. By signing the form, the customers will acknowledge they were not forced to use the subsidiary's services. Currently, banks must make the disclosure to the customer, but a signed form is not required.
Compliance officers complained that the rule, which takes effect Oct. 7, will increase their workload without helping consumers.
"These rules are already tremendously burdensome," said a compliance officer at a Michigan bank, who did not want to be identified. "They create all sorts of possibilities for mistakes to happen. There has to be a better way to do this."
The change will increase a compliance officer's work load, said Lucy Griffin, president of Compliance Resources Inc. in Falls Church, Va. Banks will have to train their employees to ask for the customer's signature, track whether it was received, and keep records of the acknowledgements to satisfy regulators.
Stephen A. Kase, general counsel with Baylake Bank in Sturgeon Bay, Wis., said the new rule also will make exams more difficult. Bankers will have to show regulators that a policy exists, that the bank has a procedure for following it, and that it has copies of the forms to prove compliance.
"It used to be that bankers would give the disclosures, and it would be the customer's responsibility to take them and read them," Mr. Kase said. "Now it's more of a two-way street. It adds another layer of record keeping responsibility for us."
The form must include the customer's name, the address of the property involved, and other data that must be personalized for each referral. It must also describe how much the affiliate's services cost and it must explain the relationship with the bank.
Penalties for noncompliance are steep, said Leonard A. Bernstein, a law partner with Reed Smith Shaw & McClay, Princeton, N.J. Under Respa, a banker can be hit with a $10,000 fine and a year in prison for repeated violations. Bankers also can be held liable for three times the amount of the referral fee, along with any court costs accrued in a lawsuit. They also face possible class actions by private litigants.
Mr. Bernstein said the more stringent provision is particularly bothersome because bankers had fought to exempt affiliates from disclosure requirements altogether.
Also, he said, requiring the customer to sign a form will do little more than tie up teller lines.
"It's just another compliance burden for banks that provides negligible benefits to the consumer," Mr. Bernstein said.