CFPB Addresses Payments to Loan Originators’ Qualified Plans
by Marissa Aquila Blundell, Esq.
Senior Vice President & General Counsel
On April 2, 2012, the Consumer Financial Protection Bureau (CFPB) issued Bulletin 2012-02, which presents guidance regarding loan originator compensation and qualified profit sharing.
The specific question covered is whether and how the current loan originator compensation restrictions affect employer contributions to qualified profit sharing, 401(k), and employee- stock ownership plans. This issue is just one of the complicated questions with which the industry has been wrestling for the past year.
To recap, the Truth-In-Lending Act (TILA)’s loan originator compensation provisions were effective April 6, 2011. In accordance with the terms of the Dodd-Frank Consumer Protection Act (Dodd-Frank), the CFPB began to exercise its authority for rulemaking pursuant to and enforcement of TILA and implementing Regulation Z (Reg. Z) on July 21, 2011.
Dodd-Frank also requires the CFPB to issue additional loan originator compensation rules, for which proposals are expected this coming summer. According to the CFPB, those rules will also further clarify and, hopefully, amend certain provisions in the current rule.
The matter at hand in the latest CFPB bulletin is whether an employer may contribute to loan originator qualified profit sharing, 401(k), and employee- stock ownership plans if the contribution stems from the profits generated by mortgage loan originators, in light of the Reg. Z provisions which prohibit compensation based on loan terms or conditions.
In short, the answer to the question is “yes” for the “Qualified Plans” listed.
According to the CFPB, the current compensation rules permit employer contributions to qualified plans even if the contributions are made from a profit pool derived from loan originations. The CFPB also acknowledged that applying the compensation rules to profit-sharing arrangements and plans which are not considered “Qualified Plans” continues to be a challenge for the industry, but declined to address those questions in a bulletin. Instead, the CFPB indicated that its proposed rules to implement the additional loan originator compensation provisions contained in Dodd-Frank will provide additional information on this topic.
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