CFPB Begins to Clarify Loan Originator Compensation Rule, More Change Coming

The Consumer Financial Protection Bureau issued clarification this week on the Federal Reserve Board’s loan originator compensation rule that last year caused most lenders to overhaul their employee compensation plans.

Following questions raised last week regarding the loan originator compensation rule and discussion over the CFPB’s authority to rewrite the rule before a January 2013 deadline, the agency issued a bulletin this week clarifying the way that employers can contribute to profit pools derived from loan originations.

“To provide clarity at this juncture, the Bureau’s view is that the Compensation Rules permit employers to contribute to Qualified Plans out of a profit pool derived from loan originations,” the bulletin states. “That is, financial institutions may make contributions to Qualified Plans for loan originators out of a pool of profits derived from loans originated by employees under the Compensation Rules.”

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The CFPB stated that while it has also received questions about how the compensation rule applies to profit-sharing arrangements that are not in the nature of qualified plans, it may provide clarity in the future, but currently will not be addressing those questions because they are fact-specific.

The Bureau must adopt a final rule by January 21, 2013 and says it expects to issue a proposed rule for public comment in the “near future.”

The American Bankers Association responded favorably to the clarification in a statement, but indicated there is more work to be done.

“The guidance is welcomed by the industry but ambiguous elements still remain in the mortgage loan originator compensation rules,” ABA said. “For example, the commentary language providing that compensation may not be based on a factor that is ‘a proxy for’ a loan’s term or condition should be more precise.”

View the CFPB bulletin.

Written by Elizabeth Ecker