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Beyond implementing contracts, the Consumer Financial Protection Bureau’s document retention requirements essentially mandate that a lender be able to document from start to finish why and how a loan officer’s ultimate total compensation was calculated. Thus, any policies which affect compensation (which are not otherwise set forth in the compensation agreement) must be in writing. By way of example, lenders who differentiate compensation based upon the source of the loan also need to have written policies documenting the specifics of such arrangements as well as policies that ensure the source of loans is tracked and documented in a manner precluding the possibility that loan source is used as an after the fact justification for compensation variations based upon loan terms. As another example, if an employer decided to pay a brokered loan differently from self-funded loans, (which is permissible under certain circumstances) any such practice would need to ensure there was no possibility of steering a borrower into a brokered loan. In other words, company policy needs to remove the discretion from loan officers to broker instead of bank loans.
In addition, policies which protect a lender from claims of unfair or deceptive activity based upon the unauthorized actions of loan officers are also needed. For instance, if two loan officers with different compensation plans decided to secretly refer loans to one another to maximize overall pricing, a lender could be found responsible absent a clear policy that limited internal referrals to particular lawful circumstances.
These are but a few examples. Lenders should realize that the onus is on them to prove their compensation plans and practices were fully compliant and must recognize that such proof has to take the form of written documentation which includes written policies and the documentation demonstrating such policies were in fact implemented and adhered to.
