Regulatory Compliance
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Compensation, Qualification, Arbitration…and Insurance

On Sunday January 20, 2013 the CFPB published final amendments to Regulation Z relative to Loan Originator Compensation. The rules become effective January 10, 2014. In large part, these changes add clarity to rules that were already in effect. These rules prohibit loan originators from being compensated in a way that benefits them when the consumer is hindered (higher pay for a higher interest rate loan, for example). Most credit unions will find themselves already in compliance.

In addition to originator compensation, the rule also covers originator qualifications – specifically, the actions credit unions must take to ensure that their loan originators are suited for the job. These rules are similar to the SAFE Act requirements under which many credit unions already operate, though it should be noted that the definition of a loan originator is more broad under these rules than under the SAFE Act (i.e., more employees will be covered under these rules than under the SAFE Act).

The rule also covers a couple of things not directly related to loan originators. The rule prohibits the financing of the premium for single-pay credit insurance, and prohibits mandatory arbitration in mortgage loans. These two components of the rule become effective June 1, 2013.

Finally, the rule requires the creation and maintenance of policies and procedures which are designed to effect compliance (§ 1026.36(j)).

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