NCUA Issues Regulatory Alert on Loan Originator Compensation
The National Credit Union Administration (NCUA) recently released a regulatory alert on pension plans in relation to the Regulation Z loan originator compensation restrictions.
Credit unions have been uncertain if their bonus plans for employees run afoul of Regulation Z. The Consumer Financial Protection Bureau (CFPB) earlier this month issued informal guidance on one aspect of the Regulation Z restrictions, and the NCUA is following suit with a regulatory alert.
The general rule is that loan originators may not receive — directly or indirectly — compensation based on any term or condition of a closed-end mortgage transaction. Compensation can include bonuses, and credit unions are therefore restricted in how bonus programs can be structured for employees.
Benefits and pension plans
Your credit union’s benefits and pension plans are impacted by this. Credit unions have questioned how they can fund a pension plan for mortgage loan originators using earnings derived in part from mortgage lending. This appeared to be impermissible, based on the Federal Reserve’s original interpretation of the rule.
Now that the CFPB has taken over Regulation Z, it is softening the Federal Reserve’s stance, and allowing financial institutions to contribute to qualified plans out of a profit pool derived from loan originations. The key is that the exception applies only to qualified plans. Therefore, if you have a discretionary non-qualified pension plan that is tied to profit goals, you cannot include income from closed-end mortgage loan originations.
The CFPB is planning on issuing a final rule about loan originator compensation by January 21, 2013. This new rule could provide further clarity on the permissibility of bonus plans.