Bryan Cave Attorney to Give GBA Telephone Briefing on “Loan Officer and Broker Compensation” on February 16
February 3, 2011
Authored by: Barry Hester and Bryan Cave
New Truth in Lending Act (TILA) rules effective April 1 make dramatic changes to the ways in which loan officers and brokers can be compensated for loan origination services. In addition, these rules were proposed prior to the enactment of the Dodd-Frank Act but were finalized afterwards. Changes to the rules made during the interim—and the overlapping Dodd-Frank provisions—could make interpreting and complying with the new restrictions a challenge.
To aid institutions in understanding and dealing with these changes, the Georgia Bankers Association will host a telephone briefing entitled “Loan Officer and Broker Compensation” from 2-4 p.m. on February 16. Join Bryan Cave partner Kalee Vargo and Steve Greene, Managing Member of Helms & Greene, LLC as they discuss how the new TILA rules affect your organization, what your bank needs to be doing now and the best HR and compensation practices going forward. Some of the topics to be covered include what originator compensation is permissible and what is not, safe harbor provisions, the interplay with Dodd-Frank and with wage and hour laws, what steps banks should be taking now and much more. The registration fee is $49 per line and registration is available online. If you have questions about the briefing, contact the GBA’s Courtenay Pope at 404.420.2015 or Susie McGehee at 404.420.2010.
Under current law, brokers are generally permitted to be paid yield spread premiums (YSP) and other incentives on loans they originate. The new TILA rules at 12 CFR § 226.36 prohibit the payment of compensation, direct or indirect, to any “loan originator” in connection with a home mortgage loan that is based on any of the loan’s terms (e.g., interest rate, APR), except payment may be made as a fixed percentage of the loan amount (and a creditor may subject such an arrangement to a minimum or maximum fee amount).
Under the new regulations, a “loan originator” is any person in a particular transaction who for compensation or other monetary gain, or in expectation thereof, arranges, negotiates, or otherwise obtains an extension of consumer credit for another person. Significantly, this includes an employee of the lender if the employee meets this definition. A lender is a “loan originator” as well as a creditor in a particular transaction if it does not provide the funds for the loan at consummation out of its own funds or deposits (i.e., if it “table-funds” the loan) and imposes and retains any direct charge on the consumer for the transaction. Thus, a creditor that is a loan originator by virtue of making a table-funded transaction is subject to these new prohibitions as well as Regulation Z’s creditor requirements.
Like Dodd-Frank, the new rules also target the practice of “steering” consumers to loans deemed less favorable to the consumer than others under the new regulatory structure. Dodd-Frank’s Section 1403, however, enacts a new TILA Section 129B(c) that imposes similar restrictions on “mortgage originators,” for which the statute provides a lengthy and distinct definition. The Fed has acknowledged that it will need to follow up its April 1 regulations with rules that implement this part of Dodd-Frank.