The Consumer Finacial Protection Bureau, or CFPB, has issued a bulletin in response to several inquiries the CFPB has received regarding the payment of compensation to loan originators under Regulation Z, 12 C.F.R. § 1026.36, which we refer to as the Compensation Rules. Adoption of the rules was required by the Dodd-Frank Act.
Subject to certain narrow exceptions, the Compensation Rules provide that no loan originator may receive (and no person may pay to a loan originator), directly or indirectly, compensation that is based on any terms or conditions of a mortgage transaction.
The CFPB has received several questions about whether and how the Compensation Rules apply to qualified profit sharing, 401(k), and employee stock ownership plans (collectively, “Qualified Plans”). Specifically, CFPB staff has been asked whether a financial institution can, consistent with the Compensation Rules, contribute to Qualified Plans for employees, including loan originators, if employer contributions to such plans are derived from profits generated by mortgage loan originations.
The Compensation Rules do not expressly address whether the loan origination provisions apply to contributions made to Qualified Plans. The CFPB recognizes that there has been some confusion on the applicability of the Compensation Rules to Qualified Plans.
Section 1403 of the Dodd-Frank Act contains provisions that also address loan originator compensation. Under the Dodd-Frank Act, the CFPB must adopt final loan originator compensation rules by January 21, 2013, or the provisions are self-effectuating on that date. The CFPB anticipates issuing a proposed rule for public comment in the near future on the loan origination provisions in the Dodd-Frank Act.
Until final rules are adopted by the CFPB, the CFPB believes it is important to clarify how the Compensation Rules apply to Qualified Plans. To provide clarity at this juncture, the CFPB’s view is that the Compensation Rules permit employers to contribute to Qualified Plans out of a profit pool derived from loan originations. 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.
The CFPB has also received questions about how the Compensation Rules apply to profit-sharing arrangements/plans that are not in the nature of Qualified Plans. Many of the questions have been fact-specific and the CFPB does not believe it is practical to provide guidance in this Bulletin about such plans. The CFPB anticipates providing greater clarity on these arrangements in connection with a proposed rule on the loan origination provisions in the Dodd-Frank Act.
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