29 Hoosier Banker August 2014 ment for a consumer credit transaction17 secured by a dwelling from including a mandatory arbitration clause.18 Similarly, a consumer credit transaction agreement may not be interpreted to prevent a consumer from bringing a claim in court pursuant to any provision of law for damages or other relief in connection with any alleged violation of federal law.19 Single-premium credit insurance. The New Originator Rule prohibits financing credit insurance20 premiums for covered consumer credit transactions;21 however, this restriction does not apply to policies with premiums or fees calculated and paid in full on a monthly basis. In spite of this exemption, banks need to be cautious in their servicing practices to avoid inadvertently billing consumers for a monthly on balance (MOB) product in such a way that may cause the policy to be considered a prohibited single-premium product. Following significant debate as to what should be considered a prohibited “singlepremium” credit insurance product, the CFPB finalized amendments22 to the New Originator Rule in late 2013 to create 12 CFR §1026.36(i)(2), which provides: “In the case of single-premium credit insurance, a creditor violates §1026.36(i) by adding the credit insurance premium or fee to the amount owed by the consumer at closing. In the case of monthly-pay credit insurance, a creditor violates §1026.36(i) if, upon the close of the monthly period in which the premium or fee is due, the creditor includes the premium or fee in the amount owed by the consumer.” Banks should carefully review their billing practices with respect to MOB credit insurance products to ensure that consumers are being billed separately for their monthly premium. Common Mistakes Banks Make Correct identification of who is and who is not an LO, and determining what is and is not included in the calculation of the 10% Rule are the two most common mistakes banks make in adapting to the New Originator Rule. There is a common misconception that if an individual is not a licensed or registered MLO under the SAFE Act, the New Originator Rule will not apply. Moreover, in smaller institutions where employees often wear many different hats, the blurring of lines of responsibility can lead to someone being considered an LO under the New Originator Rule, even if they are not considered an MLO under the SAFE Act. For larger banks, the lines between those considered to be LOs and those who are not is often more clearly defined, with functionality rarely shifting from employees’ primary job duties. The issue of cross-selling still needs to be monitored in larger institutions to ensure that the unwary commercial lending officer does not inadvertently trigger the LO compensation restrictions. In some smaller banks, however, executives – including the chief executive officer or the commercial lending officer – often will also engage in activity that may qualify them as LOs under the New Originator Rule. The provisions of the New Originator Rule that extend beyond the scope of existing MLO regulation are often the source of compliance errors. In particular, the language in the New Originator Rule defining an LO to include “a person who represents to the public through advertising or other means of communicating or providing information … that such person can or will provide any of the services or perform any of the activities”23 will often catch off guard the eager bank executive who is incentivized to cross-sell a consumer mortgage loan in interactions with commercial banking customers. The assumption that the New Originator Rule will not impact salaried LOs also is potentially flawed. While it is not uncommon for LOs to be paid set salaries, many of these same individuals also will be eligible for either bank-wide bonus plans that Continued on page 30. “As constituents, sometimes when you’re out of sight, you’re out of mind. It’s important to come to come to Washington to keep your issues on the radar screen.” – U.S. Congressman Marlin Stutzman Make your voice heard in Washington, D.C. For more information about joining the IBA Annual Washington trip, visit indianabankers.org, or contact Josh Myers at 317-917-8047, email: jmyers@indianabankers.org. 2014 IBA Annual Washington Trip September 7-9 Monday, Sept. 8 8-9 a.m. ICBA briefing 9:30-10:30 a.m. CSBS briefing 11 a.m.-12:30 p.m. ABA briefing & lunch 1-2 p.m. FDIC briefing 2:30-3:30 p.m. CFPB briefing 4-5 p.m. OCC briefing 7 p.m. Group dinner Sunday, Sept. 7 7 p.m. Group dinner cruise Tuesday, Sept. 9 9 a.m.-5 p.m. House and Senate visits 6:30 p.m. Group dinner
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