CFPB Relaxes Origination Definition

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The Consumer Financial Protection Bureau in its final rule has further eased the definition of origination.

As you may recall, in January the CFPB indicated that a bank teller that referred a customer to an originator could be considered an originator themselves, for making the referral.

Then, in June of this year the CFPB backtracked, indicating that as long as the referral was not based upon the borrower’s credit characteristics—i.e. the referral was based upon a scripted inquiry as opposed to ascertaining borrower information—then it would not amount to origination activity.

The CFPB has once again scaled back the definition of origination.  Now, a mere referral constitutes origination only if it involves a discussion of products potentially available to the borrower based upon that particular borrowers’ ability to obtain such credit.  Importantly, origination will not be found to exist in a situation where a generic offering is made to a potential borrower even when “the employee of a loan originator or creditor happens to be aware of a consumer’s assets, income, or other factors but does not select credit terms based on those factors."

Hence, to be considered originating, a referral must generally involve a discussion of available credit products premised upon some assessment of that person’s credit worthiness.

This change could have significant impacts for lenders that rely upon non-originating employees (such as tellers, account representatives) and third-party telemarketers to solicit and originate loans.  Provided those persons are not offering or discussing potential products to the borrower based upon some assessment of the borrower’s ability to obtain the loan, the activity is not considered originating.