Compliance Blog

Written by Michael Coleman, Regulatory Compliance Counsel

The CFPB recently issued a proposed rule concerning loan originator compensation. The Federal Reserve finalized a rule (which was proposed prior to Dodd-Frank) on September 24, 2010, concerning loan originator compensation.  The CFPB’s proposed rule would implement additional provisions required by Dodd-Frank.

The CFPB issued a press release which gives an overview of the proposed rule. The CFPB also issued a 6 page summary of the proposed rule which discusses some of the major elements contained in the proposed rule. Here are several important requirements from the CFPB's proposed rule we would like to draw your attention to:

• Restriction on upfront points or fees. Under the proposed rule, the creditor or mortgage broker would be prohibited from imposing upfront points or fees on a consumer in a closed-end mortgage transaction “unless the creditor makes available to the consumer a comparable, alternative loan that does not include discount points and origination points or fees, unless the consumer is unlikely to qualify for such a loan.” See proposed Section 1026.36(d)(2)(ii)(A).

• Restrictions on loan originator compensation. The proposed rule retains the general ban on paying or receiving commissions or other loan originator compensation based on the terms of the transaction (other than loan amount), and the general ban on loan originators being compensated by both consumers and other parties, with some additional revisions. The proposed rule also clarifies and revises restrictions on pooled compensation, profit-sharing, and bonus plans for loan originators, depending on the potential incentives to steer consumers to different transaction terms.

• Qualification requirements for loan originators. For loan originators who are not already required to be licensed under the SAFE Act (for example loan originators employed by credit unions, who are only registered pursuant to 12 CFR § 1007.103) the proposed rule requires the employer ensure that the loan originator meets character, fitness, and criminal background check standards that are equivalent to SAFE Act requirements and receives training commensurate with the loan originator’s duties. (Note, we will talk about this in more detail in a future blog post.)

• Use of the loan originator’s unique identifier. The CFPB proposes that the loan originator include their Nationwide Mortgage Licensing System and Registry (NMLSR) ID on certain loan documents, including: the credit application; the GFE and settlement statement required by RESPA; disclosures required by section 128 of the Truth in Lending Act (15 U.S.C. 1638); the note or loan contract; and the security instrument.

• Anti-steering rules. The proposed rule retains the anti-steering rules from the Federal Reserve’s final rule and adds a requirement that where two or more loans have the same dollar amount of discount points and origination points or fees, the creditor must present the loan with the lowest interest rate and lowest total dollar amount of discount points and origination points and fees.

• Arbitration agreements. The proposed rule would ban general agreements requiring consumers to submit any disputes that may arise to mandatory arbitration rather than filing suit in court.

• Credit insurance. The proposed rule would generally ban the financing of premiums for credit insurance.