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Board of Governors of the Federal Reserve System

Consumer Affairs Letters

CA 12-2

Consumer Financial Protection Bureau Clarifies the Rules on Compensation to Loan Originators Based on Mortgage Transaction Terms or Conditions under Regulation Z

April 4, 2012

Seal of the Board of Governors of the Federal Reserve System
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.  20551
DIVISION OF CONSUMER
AND COMMUNITY AFFAIRS
CA 12-2
April 4, 2012
TO THE OFFICERS AND MANAGERS IN CHARGE OF CONSUMER AFFAIRS SECTIONS
SUBJECT:   Consumer Financial Protection Bureau Clarifies the Rules on Compensation to Loan Originators Based on Mortgage Transaction Terms or Conditions under Regulation Z
In September 2010, the Federal Reserve Board published final rules to prohibit certain practices related to loan originator compensation in connection with mortgages.  These rules, which became effective in April 2011, were issued under the Truth in Lending Act, as implemented by Regulation Z.  In July 2011, the general rulemaking authority for most provisions of the Truth in Lending Act transferred to the Consumer Financial Protection Bureau (CFPB).

The CFPB has received questions about whether and how the loan originator compensation rules under Regulation Z apply to qualified profit sharing, 401(k), and employee stock ownership plans (collectively, “Qualified Plans”).  Specifically, financial institutions asked if contributions can be made to Qualified Plans for employees, including loan originators, if employer contributions to such plans are derived from profits generated by mortgage loan originations.  On April 2, 2012, the CFPB issued a bulletin providing further clarification on this issue.   

Please distribute this letter and the attached CFPB bulletin to supervised institutions in your District.  For more information or if you have any questions regarding this matter, please contact persons referred to in the attached bulletin.

signed by
Sandra F. Braunstein
Director
Division of Consumer and Community Affairs


Cross References:
CA 11-8
Last update: September 5, 2014