Recent CFPB Activity
In recent publications, the CFPB addressed my three favorite topics: 1. fair lending, 2. loan originator compensation, and RESPA Section 8. Read on for more, and reach out if we can help.
In its Summer Supervisory Highlights, the CFPB reminds us of the dangers of loan originator pricing discretion. Ideally, creditors should record all requests for pricing exceptions – not just those that are granted. Even if a lender captures all asks, it is difficult, if not impossible, to determine when an LO offers or hints at the availability of a pricing concession – and if they do it based on impermissible factors. Strict policies and procedures and frequent training can help to mitigate this risk, which even the best monitoring might not identify.
The Supervisory Highlights also include what seems to be a change in the CFPB’s unofficial position regarding compensation for brokered loans. It is not uncommon for creditors to broker a loan to avoid denying an application. Many creditors structure their loan originator compensation plans to make the brokered loan the loan of last resort to eliminate the LO’s ability to steer. The Supervisory Highlights seem to indicate that it is impossible to escape the proxy problem and pay loan originators differently for loans brokered when the creditor does not have an available product. Moreover, the finding could have broader implications regarding other compensation factors, even when a strict reading of the rule supports compliance.
RESPA Section 8
In July the CFPB issued consent orders interpreting RESPA Section 8 beyond its plain language. It is impossible to tell from these negotiated settlements how the CFPB would have proceeded if presented with only some of the initiatives employed by the parties which generally are considered compliant as normal promotional activities or payment for legitimate services under the 8(c)(2) exception. Those who entertain to introduce their products and services to the market should tread lightly, and anyone paying for marketing not directed to consumers should beware. Both types of initiatives can be structured in compliance with the plain language of RESPA, but still pose risk.
Thanks for reading,