Highlights:
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The Compensation Rules permit employers to contribute to Qualified Plans out
of a profit pool derived from loans originated by employees.
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Determination of whether the Compensation Rules permit employers to
contribute to profit-sharing arrangements and plans that "are not in the
nature" of qualified plans (non-qualified profit-sharing plans) requires a
case-by-case analysis of the specific facts in each instance. The CFPB
anticipates providing greater clarity in the future, in connection with a
proposed rule implementing the loan origination provisions of the Dodd-Frank
Act.
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The following pages summarize some key points of the Compensation Rules.
FDIC
Examination Policy:
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The FDIC will consider the specific facts and the totality of the
circumstances at each financial institution to determine if a financial
institution is complying with the Compensation Rules, consistent with
Regulation Z and CFPB Bulletin 2012-02.
Distribution:
FDIC-Supervised Banks
Suggested Routing:
Chief Executive Officer
Compliance Officer
Chief Lending Officer
Related
Topics:
Truth in Lending Act and Regulation Z
Attachment:
CFPB Bulletin 2012-02
(PDF Help)
Contact:
Glenn Gimble, Senior Policy Analyst, at 202-898-6865 or ggimble@fdic.gov; or Sandra Barker,
Counsel, at 202-898-3615 or sabarker@fdic.gov
Note:
FDIC Financial Institution Letters (FILs) may be accessed from the FDIC's Web
site at www.fdic.gov/news/news/financial/2012/index.html.
To receive FILs electronically, please visit http://www.fdic.gov/about/subscriptions/fil.html.
Paper copies may be obtained through the FDIC's Public Information Center, 3501
Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).
FDIC Statement on Payments to Loan Originators
Based on CFPB Bulletin 2012-02
This guidance
emphasizes certain supervisory expectations for FDIC-supervised institution
mortgage loan originator compensation plans.
The Compensation Rules
The Federal Reserve Board originally issued the loan originator compensation
rules (Compensation Rules) under the Truth in Lending Act in September 2010 (75
Fed. Reg. 58509 (Sept. 24, 2010)). Covered institutions were required to
comply with the provisions by April 6, 2011. Under Title X of the Dodd-Frank
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), rulemaking
authority for Regulation Z transferred to the Consumer Financial Protection
Bureau (CFPB) in July 2011. In December 2011, the CFPB issued interim final
rules republishing the provisions of Regulation Z (76 Fed. Reg. 79768
(Dec. 22, 2011)).
Subject to certain exceptions, the Compensation Rules and commentary to the
regulation provide that no loan originator may receive (and no person may pay to
a loan originator), directly or indirectly, compensation that is based on any
terms or conditions of a mortgage transaction, including without limitation
salaries, commissions, and annual or periodic bonuses. It does not preclude,
among other things, basing compensation on the long-term performance of a loan,
or on whether the consumer is an existing customer of the creditor or a new
customer. Terms or conditions of a transaction include interest rate,
loan-to-value ratio, or prepayment penalties.
In addition, the commentary to the regulation1 provides that compensation may
not be based on a factor that is a proxy for a term or condition, such as a
credit score when the factor is based on a term or condition, such as the
interest rate on the loan.
Compensation Plans
Qualified Plans -- The CFPB has interpreted the Compensation Rules to permit
employers to contribute to qualified profit-sharing, 401(k), and employee stock
ownership plans (collectively, Qualified Plans)2 out of a profit pool derived
from mortgages originated by loan originators under the Compensation Rules.
Non-Qualified Plans -- The CFPB has indicated that questions about how the
Compensation Rules apply to non-qualified plans are fact-specific. The CFPB has
not provided guidance about non-qualified plans in its Bulletin. The CFPB
anticipates providing greater clarity on these arrangements in connection with a
future rulemaking implementing the mortgage loan origination provisions in the
Dodd-Frank Act.
Supervisory Expectations
FDIC-supervised institutions should ensure that their policies and practices
related to compensation programs are consistent with the Compensation Rules,
commentary, and applicable CFPB guidance. Institutions should incorporate
periodic reviews of this area into their overall compliance program and report
any material exceptions to their board of directors.
FDIC Compliance Examiners will review institution compensation programs in light
of the Compensation Rules3, and consider the specific facts of the
institution's compensation program, the totality of the circumstances at each
financial institution, and the institution's efforts to comply with the
Compensation Rules.
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Mark
Pearce
Director
Division of Depositor and Consumer Protection
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1
Comment 36(d)(1)–2, 75 Fed. Reg. 58536 (Sept. 24, 2010).
2
See Section 401(a) of the Internal Revenue Code of 1986, as amended, 26 USC
401(a) and the regulations thereunder, and Section 3(2)(A) of the Employee
Retirement Income Security Act of 1974, as amended, 29 USC 1002(2)(A) (ERISA).
3 According to 75
Fed. Reg. 58509 (September 24, 2010), the purpose of the Compensation Rules is "to
protect consumers in the mortgage market from unfair or abusive lending practices
that can arise from certain loan originator compensation practices, while preserving
responsible lending and sustainable homeownership."
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