Under the current loan officer compensation rules, one point that isn't completely clear is whether a lender may charge LOs a preset flat dollar amount in the event they make a mistake.
Similarly, a generic number of allowed pricing concessions could encourage incentive to upcharge consumers across the board — the exact behavior the rules are designed to prevent.
In my experience, regulators are unsympathetic to lender losses created by loan officer mistakes as many regulators believe such mistakes are avoidable with proper supervision and training.
There is no basis under the rule to fine loan officers a set amount for errors during the origination of loans, unless the errors result from "unforeseeable circumstances." This is clear with a full reading of the rule and commentary analysis.
The Consumer Financial Protection Bureau specifically rejected the request to treat "clerical errors" any differently from other events, stating that such errors would be "difficult to define" and are already covered by revised comment 36(d)(1)-7, which allows reductions in loan originator compensation to bear the cost of pricing concessions where there has been "an unforeseen increase."
The CFPB did address a partial or specific reduction, stating unequivocally that allowing lenders to dock LO compensation "up to a specified dollar amount" for any reason related to pricing concessions, would be "inappropriate."
However, the CFPB states that "in cases in which there are truly unforeseen circumstances, there is no reason to cap the dollar amount of the concession."
Ari Karen is a partner at Offit Kurman.