26 Hoosier Banker August 2014 Continued on page 28. LENDING / CREDIT Pursuant to its authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the Consumer Financial Protection Bureau (CFPB) finalized several regulatory changes early this year, not the least of which were the Loan Originator Compensation Requirements under the Truth-In-Lending Act (New Originator Rule). Reaction to the New Originator Rule has been varied among banks, with some seeing limited-to-no impact to their existing compensation structure, while others are completely revamping the way in which they incentivize originators and retain top talent. This article summarizes requirements of the New Originator Rule, and covers common misconceptions and pitfalls banks have experienced since its enactment. Requirements ofThe New Originator Rule The New Originator Rule amends and expands Regulation Z to: • Restrict loan originator compensation;1 • Require disclosure of Nationwide Mortgage Licensing System and Registry (NMLSR) identifiers, and mandate additional background checks on loan originators;2 • Limit the use of arbitration clauses;3 and • Ban single-premium credit insurance in certain instances.4 Restricts loan originator compensation. The New Originator Rule places added restrictions on compensation paid to individuals originating closed-end consumer credit transactions secured by a consumer’s principal dwelling. This includes first or subordinate liens, and reverse mortgages that are not home equity lines of credit as defined by 12 CFR §1026.40. In general, the New Originator Rule permits a company to compensate loan originators by making contributions to a non-deferred5 profits-based bonus plan, provided the compensation is not directly or indirectly6 based on the loan originator’s transactions, and: • The compensation paid from mortgage-related business profits does not, in the aggregate, exceed 10 percent of the originator’s total compensation corresponding to the time period for which such bonus compensation is paid7 (10% Rule); or • The loan originator has not originated more than 10 consumer loans in the preceding 12-month period.8 Contributions to a “designated taxadvantaged plan” are exempt from this restriction.9 The New Originator Rule defines a loan originator (LO) more broadly than a mortgage loan originator (MLO) under the Secure and Fair Enforcement for Mortgage Licensing About the Author Brett J. Ashton serves in an of counsel capacity at Krieg DeVault LLP, Indianapolis, and is a member of the firm’s financial institutions and government affairs practice groups. He focuses his practice on financial institutions regulatory and compliance matters, in addition to representing a wide variety of clients before the Indiana legislature as a key member of the firm’s legislative and executive branch lobbying team. Mr. Ashton counsels banks and non-banks on all aspects of regulatory compliance with state and federal financial services law. Prior to joining Krieg DeVault LLP, served as a representative for legislative and regulatory interests for American International Group (AIG) companies in the Midwest and for the development and management of all legislative and policy matters for AIG’s consumer lending operations nationwide, plus the U.S. Virgin Islands and Puerto Rico. He earned a bachelor’s degree from Ball State University and a JD from Indiana University. The author can be reached at 317-238-6291, e-mail: bashton@kdlegal.com. Krieg DeVault LLP is a Diamond Associate Member of the Indiana Bankers Association. Requirements of the New Loan Originator Rule – Misconceptions and Pitfalls
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