NEW FLEXIBILITY IN LOAN ORIGINATOR COMPENSATION RULES
NCUA Sends Regulatory Alert on CFPB Guidance
Last month, the Consumer Financial Protection Bureau
(CFPB) released informal guidance on Compensation Rules
under Truth in Lending Act (Regulation Z). CFPB modified
guidance previously issued by the Federal Reserve Board and
clarified how the loan originator Compensation Rules apply
to qualified pension and profit sharing plans (Qualified Plans).
NCUA sent a Regulatory Alert (12-RA-03) to all federally
insured credit unions that explains what credit unions can
and cannot do in terms of compensating loan originators. The
Regulatory Alert is available in the Regulatory, Publications,
and Reports section found on the agency’s home page
NCUA.gov. The CFPB guidance may be found on their
website at
http://www.consumerfinance.gov/.
Financial institutions including credit unions, according to
CFPB, may now make contributions to Qualified Plans for
loan originators out of a pool of profits derived from loans
originated by employees. In essence, if your credit union
makes closed-end residential mortgage loans, you will gain
this new flexibility.
Loan originator Compensation Rules were originally adopted
by the Federal Reserve Board with a compliance date of April
6, 2011. However, the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act) transferred the
rulemaking authority for Regulation Z over to CFPB. The
CFPB subsequently issued interim final rules restating the
provisions of the Truth in Lending Act last December.
In recognition that the Compensation Rules (including the
Commentary) do not expressly address whether the loan
origination provisions apply to contributions made to
Qualified Plans and in direct response to several related
inquiries, CFPB produced guidance to fill in the gap and to
head off any further confusion.
The Compensation Rules are designed to eliminate incentives
for loan originators who might steer borrowers to loan
products less favorable to consumers. For example, if a loan
originator personally earned more income for a loan with a
higher interest rate or higher fees, the loan originator’s self-interest could lead a borrower to obtain a loan that is more
profitable to the loan originator.
Two recommended actions flow from this guidance:
; If your credit union has a discretionary non-qualified
pension plan tied to profit targets, you should amend the
plan to exclude income from closed-end mortgage loan
originations, pending additional guidance from CFPB; and
; If your credit union has a pension plan that establishes the
employer’s contribution amount based on a loan
originator’s income, that plan is particularly at risk.
The Dodd-Frank Act also contains provisions that address
loan originator compensation that apply to profit sharing
arrangements not considered Qualified Plans. Under the
Dodd-Frank Act, CFPB must adopt final loan originator
compensation rules by Jan. 21, 2013, or the provisions go
into effect on that date. CFPB anticipates issuing a proposed
rule for public comment in the near future on the loan
origination provisions in the Dodd-Frank Act.
GET READY: CU ONLINE UPGRADE STARTS MAY 28 (FROM PAGE 3)
; Real-time Call Report calculations and edits during data
entry and no need to click “Save” to refresh.
; Help tips and instructions incorporated into each profile
section, along with easy access to Call Report forms and
instructions for each cycle within the online system.
; Expanded read-only access capabilities for credit union
staff and board directors.
As part of the overhaul, credit unions using CU Online will need
to download and install new software—Microsoft Silverlight.
During the upgrade, NCUA will also eliminate paper notices
each Call Report cycle to credit unions using CU Online. As
part of the greeNCUA initiative, the switch to electronic notices
from NCUA Express for CU Online will reduce NCUA’s paper
and postage costs by more than $20,000 annually.
NCUA hosted an interactive 90 minutes webinar May 15 to
maximize users experience with CU Online. During the
webinar, NCUA risk-management experts briefed and
answered questions from credit unions and the general
public. The webinar will be posted at
ncua.gov for viewing
in the near future.
“Those who use the CU Online reporting system each day
are in the best position to identify improvements,” concluded
Fazio. “We worked very hard to incorporate their ideas and
are confident the changes will improve the CU Online
experience. To make the system even better in the future, we
welcome and hope to receive many more suggestions.”
Credit unions with questions about the CU Online upgrade
can email
CreditUnionOnline@ncua.gov.
