The Consumer Financial Protection Bureau issued a bulletin Monday clarifying on an interim basis how compensation rules apply to qualified profit sharing, 401(k) and employee stock ownership plans.
“The bureau's view is that the compensation rules permit employers to contribute to qualified plans out of a profit pool derived from loan originations,” according to the bulletin. “That is, financial institutions may make contributions to qualified plans for loan originators out of a pool of profits derived from loans originated by employees under the compensation rules.”
The CFPB it was providing the clarification in response to “several inquiries” it received “regarding the payment of compensation to loan originators under Regulation Z.”
More specifically, the bureau said it had received questions related to the three aforementioned types of plans, which it refers to collectively as qualified plans.
The original compensation rules, the bureau acknowledged, “do not expressly address whether the loan origination provisions apply to contributions made to qualified plans.
“The bureau recognizes there has been some confusion on the applicability of the compensation rules to qualified plans.”
The CFPB said it also has received questions about how the comp rules apply “to profit-sharing arrangements/plans that are not in the nature of qualified plans,” many of which have been “fact-specific.”
The bureau said in its bulletin it “does not believe it is practical to provide guidance in this bulletin about such plans” at the current time. However, it said that is does anticipate “providing greater clarity on these arrangements in connection with a proposed rule on the loan origination provisions of the Dodd-Frank Act.”
As the CFPB's bulletin noted, the Federal Reserve Board originally adopted loan origination comp rules in September 2010, and covered institutions had to comply with the provisions on April 6, 2011.
But pursuant to Title X of the Dodd Frank Wall Street Reform and Consumer Protection Act, rulemaking authority was transferred to the CFPB.
On Dec. 22 of last year, the bureau issued interim final rules “recodifying” Reg Z.
With some narrow exceptions, originator comp rules provide that no originator may receive and no person can pay an originator, directly or indirectly, compensation based on any terms or conditions of a mortgage deal. The regulation's commentary shows “compensation” includes salaries, commissions, annual or periodic bonuses under the rule. “Terms” include interest rates, loan-to-value ratios or prepayment penalties.
“Compensation may not be based on a factor that is a proxy for a term or condition, such as a credit score, when the factor is based on a term or condition such as the interest rate on the loan,” the bulletin stressed.
In addition, the bureau reminded the industry in its bulletin that, “examples are provided in the commentary of when compensation is not based on a transaction's term or condition, such as basing compensation on the long-term performance of the loan and whether the consumer is an existing customer of the creditor or a new customer.”
