While well-intentioned, the Truth in Lending Act’s mortgage loan originator rules are extremely complex and continue to cause considerable compliance challenges due to their prescriptive and detailed restrictions on compensation for loan originators, the American Bankers Association said today in a letter to the CFPB. The agency is conducting a mandated review of the provisions of Regulation Z, which implements the act. In its comments, ABA proposed several reforms to the rules based on banker concerns.
First, the CFPB should amend current regulations to allow loan originators to voluntarily lower their compensation in response to market competition and when they pass along savings to the consumer, ABA said. Currently, a loan originator’s compensation may not be increased or decreased once loan terms have been offered to a consumer, which prohibits reductions in compensation that could otherwise be passed along to consumers in the form of lower-priced loans, the association said. Second, the agency should end the restriction preventing banks from holding employees financially accountable for losses that result from mistakes or intentional noncompliance with company policy when they make an error on a particular loan.
Third, lenders should be allowed to increase compensation for originators making loans under state and local housing finance agency and Federal Housing Agency programs, ABA said. Fourth, the association urged the CFPB to revisit provisions pertaining to bonuses paid to loan originators. “ABA believes that the provision against profits-based bonuses is redundant and unnecessary, particularly in light of consumer protections added to law by subsequent regulations,” the association said. Finally, ABA said there should be further exploration of the overall need for the rules in light of legal developments since the rules’ inception more than a decade ago.