The American Bankers Association (ABA) has submitted a letter to Chairman Ben S. Bernanke and the Federal Reserve Board (FRB) for a 90-day delay of the April 1, 2011 enforcement of the loan origination compensation rule, Regulation Z; Docket No. R-1366, Truth-in-Lending. The ABA also seeks written guidance on the Fed's LO compensation rule because the regulation remains ambiguous and is laden with regulatory, judicial and commercial risk.
ABA President and Chief Executive Officer Frank Keating explained that even after Fed briefings, "Key compliance questions that remain unanswered. Novel interpretations continue to emerge in a way that frustrates banks’ regulatory execution and risk analysis of these provisions."
Keating stressed that ABA is not suggesting that the Fed end the rule-making and that ABA fully supports efforts to prohibit abusive practices associated with yield spread premium (YSP) payments and similar arrangements.
"The Board’s continuing informal interpretations have altered the rule’s definitions and reach to the extent that legal experts no longer understand its precise scope," said Keating in the ABA letter. "The interpretations have in fact turned non-prohibited activity into 'proxies' for prohibited activity, a confusing circumstance to say the least. These expansions by interpretation and other ambiguities cause us extreme concern because of their vagueness and because of the readiness to apply changing standards without constraint in any setting, regardless of lender intent."
The ABA letter to the FRB is the latest in a series of actions from trade associations seeking a delay in the April 1, 2011 effective date of the rule. The National Associaiton of Mortgage Brokers (NAMB) filed a lawsuit on March 9, 2011 against the FRB seeking temporary and preliminary restraints to delay implementation of the LO compensation rule.