A great deal of confusion exists over the impact of the new loan officer compensation laws that exclude payments to originators of 10 or fewer loans over a 12 month period from application of the new compensation regulations. While originators who fall under this 10 loan threshold are essentially free to be paid without regard to the new LO comp laws, this does not mean that managers or owners who originate fewer than 10 loans are free to be paid on company or branch profitability as if they were not originators. In other words, the limitation on the payment of profitability for owners and branch managers is triggered by the fact that they are considered originators—not by the number of loans they originate. Hence, while a branch manager who originated five loans may be compensated on such loans outside the bounds of the LO comp rules, this does not mean the branch manager—who has clearly originated at least one loan—is now a non-originator free to be paid profit on branch activities.
Many are misreading the 10 loan threshold as meaning that one is not an originator if they originate fewer than 10 loans annually. That is not the case. In fact, the Consumer Financial Protection Bureau has made it clear that even if one does not actually “originate” a loan, but merely holds themselves out to the public as someone who did in fact originate, it will render such an individual an originator for all purposes under the LO compensation laws. Accordingly, the limitations on the manner in which branch managers and owners can be paid on the profit of the branches/companies they manage/own remain in effect even if they actually originate fewer than the 10 loan annual threshold.
Owners and managers wishing to be paid on the profit of their companies/branches must avoid all activities whatsoever that would render them an originator under the LO comp laws. Given the expansiveness of the new definition of originator, it essentially means that managers and owners who drive substantial business to their respective organizations though direct customer contact will typically be considered originators and subject to the restrictions on payment of organizational profit, no matter how many loans (if any) they originate.