The Consumer Financial Protection Bureau (“CFPB”) recently issued a Small Entity Compliance Guide on the Ability-to-Repay and Qualified Mortgage Rule (the “Rule”). The Rule was issued under Dodd-Frank. The Guide provides an overall summary of the Rule and discusses application of the Rule in a Q&A format. The CFPB issued the final rule on January 10, 2013, with an effective date of January 10, 2014.
Entries in Regulation Z (8)
CFPB Issues Final Rules Governing MLO Compensation Restrictions and Other Requirements under Regulation Z
The Consumer Financial Protection Bureau (“CFPB”) recently issued a final rule (the “Final Rule”) implementing restrictions on mortgage loan originator (“MLO”) compensation under Regulation Z (Truth in Lending), along with additional interpretive guidance. These restrictions, which prohibit MLO compensation based on mortgage loan terms, or “proxies” for such terms, were mandated under the Dodd-Frank Act. In a number of prior blogs, we discussed the CFPB’s evolving guidance on these restrictions. One issue of particular interest was whether profit-based retirement and bonus plans would be prohibited under the rationale that profit serves as a “proxy” for certain loan terms such as interest rate (a view taken by Federal Reserve staff members when the rule was first introduced).
The Consumer Financial Protection Bureau (“CFPB”) has issued a proposed rule for public comment that would amend Regulation Z (Truth in Lending) to implement provisions of the Dodd-Frank Act. The amendments would include, among other things, new rules governing the participation of mortgage loan originators (“MLOs”) in employer profit-sharing plans. Under Regulation Z, MLO compensation cannot be based on mortgage loan terms and conditions, or “proxies” for such terms and conditions. In a prior blog, we discussed the issue of whether, under Regulation Z, MLO participation in a profit-sharing compensation plan could be prohibited under the rationale that profitability is a “proxy” for mortgage loan interest rate (a loan term).
The proposed rule provides additional guidance with examples of when factors used to determine compensation could serve as “proxies” for loan terms and conditions. In addition, the proposed rules states that employer profit-based contributions to 401(k) plans, employee stock plans, and other “qualified” plans would be generally permissible, provided that contributions are not based on the terms of an MLO’s individual transactions. Bonuses and contributions to non-qualified profit-sharing plans from general profits would be permitted provided that (i) contributions are not based on the terms of an MLO’s individual transactions, and (ii) in the prior tax year, not more than a certain percentage of the person’s or business unit’s revenues are generated from the person’s mortgage business. The CFPB is seeking comment on whether the threshold should be 25% or 50%. Bonuses and contributions to non-qualified profit-sharing plans from general profits would also be permitted if an MLO closed five or fewer mortgage transactions during the 12-month period preceding the employer’s determination to make a payment. Public comments on the proposed rule (which may be made online) are due by October 16, 2012.
The FDIC has issued a statement in follow-up to a bulletin by the Consumer Financial Protection Bureau (“CFPB”) regarding the compensation of mortgage loan originators (“MLOs”) under Regulation Z, 12 C.F.R. § 226.36 (the “Rule”). As discussed earlier this month, the CFPB recently clarified that MLOs may participate in an employer’s qualified profit sharing, 401(k), and employee stock ownership plans (“Qualified Plans”) even if contributions are taken from a profit pool derived from mortgage originations subject to the Rule.
The CFPB’s bulletin did not provide guidance regarding other compensation plans, but promised further clarification in a future rulemaking. For examination purposes, the FDIC will expect compensation plans to be consistent with the Rule, CFPB guidance, and Rule commentary. The Rule is intended to protect consumers from unfair or abusive lending practices, while preserving responsible lending and sustained homeownership. Pending further guidance from the CFPB, the FDIC will review compensation programs on a fact-specific basis in light of an institution’s compliance efforts and particular circumstances.
The CFPB has issued a bulletin on the applicability of certain restrictions under Regulation Z with regard to Mortgage Loan Originator (“MLO”) compensation. Specifically, the CFPB has clarified its position that MLOs may participate in an employer’s qualified profit sharing, 401(k), and employee stock ownership plans (“Qualified Plans”) even if employer contributions to such plans are derived from profits generated from mortgage loan origination.