New Law to Regulate 1031 Qualified Intermediaries
Posted by Andy Gustafson on Thu, Aug 12, 2010
The Consumer Financial Protection Act of 2010(CFPA) was recently signed into law that will provide regulation for Qualified Intermediaries (QI) of 1031 tax deferred exchanges. The Federation of Exchange Accommodators (FEA) is a trade association representing companies whose primary business is acting as QIs for 1031 exchanges. The FEA will work with the Consumer Financial Protection Bureau to draft regulations. In 2007, the FEA had asked the Federal Trade Commission to govern QI’s but the Commission declined citing the burden of oversight exceeded the benefits.
The FEA represents the interests of their members who are QI’s and affiliates of the Tenants in Common industry, banks, real estate brokers and title companies. Recent bankruptcies resulting in millions of lost exchange proceeds by a handful of QI’s have elevated the need for regulation. The FEA promotes ethical standards and conduct for QI’s, offers education to the exchange industry and to the public. More importantly, the FEA established a Code of Ethics and Standards requiring a criminal background check on those principals of member companies who oversee the transfer of exchange proceeds.
The CFPA requires the Director of Consumer Financial Protection Bureau to study and propose legislation to protect consumers using QI’s. The study must be completed within one year with a program implemented within two years following the Director’s study.
The FEA has been a proponent of federal regulation for exchange proceeds management standards and protection of client interests. The FEA’s “model law” with slight alterations has been adopted by California, Colorado, Maine, Nevada, Oregon, Virginia and Washington.
