Banks frequently respond to questions from loan officers complaining that a local competitor has a more "aggressive" compensation plan. Of course, these loan officers are rarely concerned about compliance implications. Rather, these loan officers are normally concerned with arriving at a system of pay that is as closely structured to pre-April 2011 as possible. This places tremendous pressure on lenders to push the envelope to avoid the defection of employees. Of course, it is the lender that takes all the risk in adopting a compliance challenged compensation plan. Indeed, the loan officer usually has little need to worry about what occurs if a regulatory agency or customer issues a complaint.
Or do they? Under Section 1404 of the Dodd Frank Act, originators have personal liability for violations of the loan officer compensation rules. Originators can be held liable up to three times the amount of the compensation they receive on the challenged transaction plus attorneys' fees. Obviously the damages multiply as additional borrowers learn of claims and thereafter bring their own claims.
Lenders are wise to remind originators as often as possible that they each, individually, have a significant stake in ensuring that compliant compensation plans are in place wherever they work. Doing so will make originators think twice about leaving for risky or outright unlawful compensation plans once it is realized that the long term risk and cost outweighs the short term gain.