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Compensation Based on Terms of Multiple Individual Loan Originators’ Transactions
Although existing § 1026.36(d)(1)(i) prohibits payment of an individual loan originator’s
compensation that is “directly or indirectly” based on the terms of “the transaction,” and TILA
(as amended by the Dodd-Frank Act) similarly prohibits compensation that “directly or
indirectly” varies based on the terms of “the loan,” the existing regulation and its commentary do
not expressly address whether a person may pay compensation that is based on the terms of
multiple transactions of multiple individual loan originators. As a result, numerous questions
have been posed regarding the applicability of the existing regulation to compensation programs
of creditors or loan originator organizations, such as those that involve payment of bonuses or
other deferred compensation under company profit-sharing plans
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or contributions to certain
tax-advantaged retirement plans under the Internal Revenue Code (such as 401(k) plans),
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under
which individual loan originators may be paid variable, additional compensation that is based in
whole or in part on profitability of the creditor or loan originator organization.
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As the Bureau
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As discussed below, the proposal sometimes used the term “profit-sharing plan” to describe compensation
programs (including “bonus plans,” “profit pools,” and “bonus pools”) under which individual loan originators are
paid additional compensation based in whole or in part on the profitability of the company, business unit, or affiliate.
As discussed below, this final rule effectively substitutes the term “non-deferred profits-based compensation plan”
for “profit-sharing plan” but the term has a somewhat different meaning for purposes of § 1026.36(d)(1)(iv). When
referring to the proposal, the Small Business Panel Review process, or comments in response thereto in this section-
by-section analysis, the term “profit-sharing plan” is retained whereas when referring to the provisions of this final
rule, the term “non-deferred profits-based compensation plan” is used. The discussion of the proposal, Small
Business Panel Review process, or comments in response thereto also sometimes refers to “profit-sharing bonuses,”
whereas the final rule and the provisions of this section-by-section analysis of the final rule do not use that term.
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As discussed below, the proposal sometimes used the term “qualified plan” to describe certain tax-advantaged
defined benefit and defined contribution plans. The proposal sometimes used the term “non-qualified plan” to refer
to other defined benefit plans and defined contribution plans. Final § 1026.36(d)(1)(iii) and its commentary do not
use the terms “qualified plan” and “non-qualified plan.” Instead, they use the terms “designated tax-advantaged
plans” (or “designated plans”) and “non-designated plans,” respectively. When referring to the proposal, the Small
Business Panel Review process, or comments in response thereto in this section-by-section analysis, the terms
“qualified plan” and “non-qualified plan” are retained. When referring to the provisions of this final rule, the terms
“designated tax-advantaged plan” (or “designated plan”) and “non-designated plan” are used.
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The Bureau issued a bulletin on April 2, 2012 to address many of these questions. CFPB Bull. No. 2012-2,
Payments to Loan Originators Based on Mortgage Transaction Terms or Conditions under Regulation Z (Apr. 2,
2012), available at http://files.consumerfinance.gov/f/201204_cfpb_LoanOriginatorCompensationBulletin.pdf
(CFPB Bulletin 2012-2). CFPB Bulletin 2012-2 stated that, until this final rule was adopted, employers could make