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NCUA Referral fees can be conflict of interest
ALEXANDRIA, Va. (4/8/11)--Allowing a federal credit union employee who serves as director of lending to be paid for referring rejected mortgage applications to an outside mortgage banker is “an impermissible conflict of interest,” the National Credit Union Administration (NCUA) said in a recent legal opinion. The conflict of interest would exist whether the credit union employee is paid a referral fee or a salary by the outside broker, the agency adds. In the opinion, NCUA Associate General Counsel Hattie Ulan specifically notes that the agency’s lending rules prohibit employees “from receiving directly or indirectly, any commission, fee or other compensation in connection with any loan made by the credit union.” The rule does include an exception for some cases, but that exception would not apply when a credit union or an employee makes a referral to an outside party. These conflict of interest prohibitions are meant to ensure “that employees and management make appropriate decisions regarding lending,” the agency said. “Loan officers must decide whether to grant or deny loan applications absent economic incentives that could influence decisions against the best interests of members and the [credit union].” Ulan also noted that the referral arrangement may violate portions of the Real Estate Settlement Procedures Act prohibit any person from accepting payment for referrals. For the full NCUA letter, use the resource link.
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