The American Bankers Association is urging the Consumer Financial Protection Bureau to clarify the term "proxy" in the loan officer compensation rule which the trade group says is causing "serious difficulties" for banks -- and conflicts with federal pension laws.
As promulgated by the Federal Reserve, lenders are not permitted to compensate mortgage LOs based on the terms and condition of the loans or "proxies" for terms or conditions.
The Fed has opined that banks can compensate their LOs based on the number of loans they originate in a certain period of time. However, compensating an LO based on a bank's profitability is considered a proxy for terms or conditions.
"Bank examiners are taking a rigid position that year-end bonus payments or contributions to 401-K plans are rendered illegal if they are related to overall bank profit," ABA says in a letter to Rajeev Date, who is responsible for running the CFPB as the special advisor to the Treasury secretary.
"This stance is not only overly severe, but it also forces banks into greater compliance difficulties with Employee Retirement Income Security Act-related federal laws," ABA president and chief executive Frank Keating says in a recent letter to Date.
Keating urges Date to clarify the proxy and other "confusing" provisions in the loan officer compensation rule that is now under the CFPB's authority to interpret and enforce.
The bureau can address this [proxy] and "similar problems with a clearer, common sense interpretative statement," Keating says.
