CFPB Solidifies Loan Originator Compensation Restrictions, Dumps Zero-Zero Requirement

Even though the loan originator compensation rule (the “Final Rule” or “Rule”) finalized by the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) in January passed without as much fanfare as the Bureau’s Qualified Mortgage (“QM”) rule, the Rule will result in significant challenges to the mortgage lending industry’s compliance efforts.

The CFPB’s Final Rule answers some of the questions left open by the previous loan originator compensation rule (“Existing Rule”) implemented by the Federal Reserve Board (“FRB” or “Board”) in 2010, prior to the transfer of Truth-in-Lending Act (“TILA”) authority from the Board to the Bureau. Of particular interest to lenders, brokers and loan originators are answers to the following questions:

- what constitutes a proxy for a loan’s terms?

- when may a loan originator grant concessions to a borrower?

- what bonuses may a creditor pay its loan originators?

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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