We are amending Regulation Z to implement amendments to the Truth in Lending Act made by the Dodd-Frank Act. The final rule implements requirements and restrictions imposed by the Dodd-Frank Act concerning loan originator compensation; qualifications of, and registration or licensing of loan originators; compliance procedures for depository institutions; mandatory arbitration; and the financing of single-premium credit insurance. The final rule revises or provides additional commentary on Regulation Z’s restrictions on loan originator compensation, including application of these restrictions to prohibitions on dual compensation and compensation based on a term of a transaction or a proxy for a term of a transaction, and to recordkeeping requirements. The final rule also establishes tests for when loan originators can be compensated through certain profits-based compensation arrangements. At this time, the Bureau is not prohibiting payments to and receipt of payments by loan originators when a consumer pays upfront points or fees in the mortgage transaction. Instead the Bureau will first study how points and fees function in the market and the impact of this and other mortgage-related rulemakings on consumers’ understanding of and choices with respect to points and fees. This final rule is designed primarily to protect consumers by reducing incentives for loan originators to steer consumers into loans with particular terms and by ensuring that loan originators are adequately qualified.
This interpretive rule construes Regulation Z, which implements the Truth in Lending Act (TILA). Generally, if a mortgage loan originator organization employs an individual loan originator who is not licensed and is not required to be licensed, Regulation Z requires the loan originator organization to perform specific screening of that individual before permitting the individual to act as a loan originator and to provide certain ongoing training. Regulation Z is ambiguous as to whether these requirements apply to loan originator organizations employing individual loan originators who have temporary authority to originate loans pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (EGRRCPA) amendments to the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). These amendments take effect on November 24, 2019. This interpretive rule concludes that a loan originator organization is not required to comply with certain screening and training requirements under Regulation Z if the individual loan originator employee is authorized to act as a loan originator pursuant to the temporary authority described in the SAFE Act.