If you have a beef with a broker ... if your broker does a lousy job that fails to meet the baseline standards for licensed professionals ... who do you call?

The usual and traditional answer is that you pick up the phone or send a letter to state or provincial regulators. They can investigate the matter, obtain books, papers and testimony, and if they find wrong-doing fine a broker or suspend or terminate a license.

This is serious stuff because a broker without a license is a broker without a livelihood.

Given that a real estate transaction is a major life decision, it follows that the rules related to brokerage should be both clear and enforceable. In the case of real estate there is a substantial body of laws, regulations, court decisions and ethical standards which govern the field. Brokers, in turn, should know what the standards are and the rules should apply equally to all licensees.

With this background in mind, the federal agencies that regulate national banks are now seeking to define real estate brokerage as an "activity" which is financial in nature, incidental to financial activities, or that complements a financial activity. In other words, real estate brokerage is simply another service bankers should be able to offer.

The definition of banking under the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 is so broad that it seems to include every event where money is exchanged. After all, is not buying a car a "financial activity"? What about the purchase of balloons, soap or lemonade?

For consumers the issue is different. If national banks are allowed to provide real estate services under the authority of federal regulators, it means that state laws will be preempted. A national bank need not match the standards required of state-licensed brokers and salespeople. In effect, there would two sets of real estate regulation, one for national banks and a second for all other brokers.

The ability of banks to offer real estate brokerage services also means something else. If consumers have a complaint or problem with a broker, where do they go? Today they can go to nearby state regulators and if those regulators are not responsive they can make their feelings known to state officials, politicians who would like to stay elected.

But with national banks in real estate the complaint process would be different: A consumer with a beef would have to go to un-elected federal regulators in Washington, a place where access and satisfaction by individual consumers without substantial PAC money is hardly assured. Even the Federal Trade Commission, the huge agency that's supposed to protect the public against unfair business practices; is literally barred from examining bank abuses. As the Federal Reserve Bank of New York explains, the "enforcement of federal consumer regulations is generally left to the FTC when the institution is not a federally insured depository institution." That's scarcely a good omen for a consumers.

The Association of Real Estate License Law Officials (ARELLO) issued a statement last week opposing the expansion of national banks into real estate brokerage. This is not a narrow matter of turf and territory, rather at its core it concerns the right of consumers to hold local politicians responsible for the acts of regulators and thus the regulators themselves.

To this point Congress has prevented federal regulators from expanding national bank powers, but this is a matter needs to be finally resolved.

Buying and selling residential real estate is typically the most significant economic event we each experience. Everyone should be able to deal with local real estate brokers with the assurance that if something goes wrong, if the broker is at fault, consumers will not have to look far for satisfaction and remedies. That's a standard that cannot be met by bureaucrats a thousand miles away.

STATEMENT ON OCC OPINIONS EXPANDING AUTHORITY OF BANKS TO DEVELOP REAL ESTATE

The Association of Real Estate License Law Officials (ARELLO) comprises real estate regulators from U.S. states, the District of Columbia, Puerto Rico, Guam, and the Virgin Islands, as well as numerous countries and territories on almost every continent in the world. Our mission is to support regulatory agencies in the administration and enforcement of real estate license laws put in place to protect the public interest.

In December 2005, the U.S. Office of the Comptroller of the Currency (OCC) issued legal opinions that gave one national bank the authority to build a luxury hotel and gave another the authority to build a multi-use project that includes office and retail space, a hotel, and residential condominiums to be sold to make the remainder of the project economically feasible. ARELLO is concerned that expanding the authority of banks to develop real estate could lead to banks being given authority to broker their own properties and, as the next step, being given authority to broker real estate for others. If that happens, it will place the regulatory structure of the state-regulated real estate industry at risk.

The extremely broad preemption authority asserted by the OCC in its 2004 regulations could permit banks and their operating subsidiaries to broker real estate without having to become licensed under, or otherwise comply with, state/territory real estate law. These laws, administered by our members, regulate real estate transactions in every jurisdiction, provide for licensing of qualified real estate brokers and agents, and protect consumers. These laws authorize real estate regulatory agencies in each state and territory to monitor their licensees and investigate allegations of illegal or fraudulent real estate practices.

As we explained in our statement issued in May 2004 about our concerns about potential preemption of state and territorial real estate laws:

Any federal legislation or regulation which exempts national banks from the jurisdiction of state real estate licensing authorities is directly threatening to the integrity of the real estate transaction process, to the detriment of the individual buyer and seller to the consumer.

ARELLO believes the OCC should take no action that would give banks authority that could result in preemption of state and territorial laws under which real estate consumers are protected.

Adopted by majority vote of the ARELLO Board of Directors April 8, 2006
posted by Rick at 4/19/2006 01:43:00 AM

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