CFPB Compensation Rule Allows Cash Bonus to Loan Officers

Mortgage companies can pay their loan officers quarterly and annual cash bonuses under the final LO compensation rule issued by the Consumer Financial Protection Bureau, provided the bonuses are not based on the terms of the individual loan officer’s transactions.

Currently, lenders can only reward LOs through contributions to retirement plans, such as 401(k) plans, that are subject to Internal Revenue Service regulations.

Under the final rule, employers can also pay cash bonuses. These bonuses must be limited to 10% of the loan officer’s total compensation including the bonus.

“That is a lot more liberal than the existing rule,” said Richard Andreano, a partner at the Ballard Spahr law firm in Washington.

The CFPB originally proposed to allow cash bonuses as long as the mortgage-related profits were no more than 25% to 50% of the profit pool.

But many industry commenters on the CFPB bonus proposal consider it unworkable for many firms.

“People were fearful they would be very rigid. I think a lot of these rules show they have been very thoughtful,” Andreano said.

The Independent Community Bankers of America also welcomed CFPB’s decision on bonuses.

“The clarifications included in the rule will help ensure that community banks can continue hiring and retaining qualified mortgage loan originators, which will help their customers and communities continue to access credit and recover from the economic downturn,” said ICBA president and chief executive Camden Fine.