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Spring Cleaning with a Sanity Check

Residential Loan Officer Compensation
There is a lot of confusion about the new rules regarding compensating residential loan officers and just how strictly they will be applied. An April 2, 2012 the Consumer Financial Protection Bureau issued CFPB Bulletin 2012-02 which clarifies the issue a little bit. Generally the compensation rules provide that no residential loan originator may receive, directly or indirectly, compensation that is based on any term or condition of a mortgage transaction such as the interest rate, loan to value ration or a prepayment penalty. On the other hand, compensation may be based on the long term performance of the loan or whether the borrower is a new or existing customer.

Assurances from other agencies prior to the CFPB’s authority over Regulation Z indicated that the interpretation of the rule would be very strict and that any compensation based on the overall performance of the financial institution would be illegal as the overall performance of the institution was indirectly tied to and affected by loan terms. The CFPB issuance takes a step back from that interpretation. Specifically, it states that an institution may make a contribution to a qualified profit sharing plan, a 401K or an employee stock ownership plan if the employer contribution is derived from the institution’s profits even though those profits may be derived in part from profits generated by mortgage loan originators. This is a big step forward in injecting sanity into the rule, and I applaud the CFPB for the position it has taken. This is not the final rule, and it does not deal with issues other than the very limited issue discussed. The CFPB must publish final rules by January 21, 2013, and it anticipates publishing a proposed final rule for comment shortly.

ATM Compliance
If your institution has not updated its ATMs to meet the new ADA rules, you are behind the power curve. Compliance was mandatory by March 15. We have heard from the ADA that you will not be criticized if the reason for delayed compliance is because your ATM provider could not convert your machines because of scheduling problems, and you have documentation of that fact. The new rules require that all ATMs must be speech enabled to service visually impaired customer. Also, all ATMs must have braille instructions to initiate the voice guidance feature. The only exception is if the cost of the conversion would cause an undue burden or expense to the ATM owner. Also, get out that old measuring stick; the new height and reach requirement is 48 inches for all new ATMs and ATM re-locations.

IRS Information Reporting
Its income tax time again which is a reminder that all institutions should periodically review their procedures for providing 1099 and 1098 information returns to their customers and filing with the IRS. The two mistakes that we see most often are the failure to include deposit account bonuses on 1099-INTs and the failure to provide form 1099-MISC when they are required.

If you pay a customer a bonus for opening or maintaining a deposit account and the bonus is either cash or merchandise which has a value greater than $10, then, that bonus is interest from an IRS perspective and must be aggregated with all other interest that you paid to the customer during the year and reported on the customer’s 1099-INT. If you pay an individual over $600 during a year for services rendered or awards or prizes that the person received from you, you must report the amount paid on a 1099-MISC. The reporting requirement is on the person making the payment, not necessarily the person for whom the service was provided so even if you are paying someone for a service that the person provided to your customer you have the reporting responsibility. You have to provide 1099-MISCs to your directors for the director’s fees that you pay them. If your plumber or HVAC repair person or the person who maintains the lawns around your branches is an individual and you pay that person over $600 during a year, they must be provided a 1099-MISC as well.

One other tip on information reporting. Frequently, when there are joint owners of an account or joint borrowers on a loan they will ask you to divide the interest paid to them or by them and to issue returns to each of them. The IRS rules do not allow that. You file one return per account, and it is up to your customers to sort out who paid or received what.
The above article was provided to Andrews Hooper Pavlik PLC (AHP) courtesy of TriComply, the compliance arm of TriNovus. AHP does not guarantee accuracy of the information provided in the article and it should not be construed as professional advice. If you have any questions regarding this article, please contact Randy Morse, CPA, Partner and leader of AHP’s Financial Institution practice. AHP provides a broad range of accounting, auditing, tax, and consulting services to financial institutions throughout the state of Michigan and beyond.

TriComply compliance service offer banks a full compliance package that provides them with quality assistance at an affordable price. TriComply provides the TriComply knowledgebase, compliance manual, policy manual (written and reviewed), compliance newsletter (weekly), advertisement review, compliance calendar, helpful resources and an online training library of compliance webinars.

The CFPB now has control over certain consumer protection laws. As a result, TriComply has put out a product called CFPB Comparisons: What Really Changed. This produce allows you to see the changes firsthand versus going line by line on your own. Thus saving you hours of stress, anxiety and work. Please contact Starr Largin at 205.588.4316 or or Darryl Brasfield at to receive information regarding TriComply or to schedule a demo.