Prohibited Conduct & Records
~11 min read · Apply advertising file, record-retention and surety-bond duties, and the prohibited-conduct list.
The model act closes with a prohibited-conduct list — the eleven-ish 'thou shalt nots' of state licensing — plus the record duties that prove compliance. Exam questions quote the conduct list nearly verbatim: defraud, mislead, unearned fees, unlicensed activity, improper influence.
The prohibited-conduct list
A licensee shall not: defraud or mislead borrowers, lenders, or any person; engage in unfair or deceptive practices; obtain property by fraud or misrepresentation; solicit or enter agreements for services and then fail to perform; charge or collect fees that are unearned, undisclosed, or prohibited; take compensation for steering or violating comp rules; make false statements or material omissions to regulators or on NMLS records; impede an investigation; improperly influence an appraiser; make false promises through advertising or agents; conduct business with unlicensed persons where licensure is required, or pay licensable compensation to unlicensed persons.
- Defraud, mislead, deceive — the umbrella trio
- No unearned/undisclosed fees; perform what you sell
- No false statements to regulators or in NMLS
- No appraisal pressure; no paying unlicensed originators
Records and the paper duty
Licensees keep books and records per state schedules (commonly three years minimum for origination records, advertising, and fee documentation), accessible to the regulator on demand. NMLS records — the MU4 — must stay current and truthful: address, employment, disclosure questions; amendments filed promptly when facts change. A false MU4 answer is a per-se ground for revocation, independent of the underlying event it hid.
- ~3-year retention norms; state schedules control
- MU4 kept current — amendments are the licensee's duty
- A concealed event punishes twice: the event + the lie
Compensation hygiene
Fees flow through the sponsoring company — an MLO does not take direct side payments from borrowers; every fee is disclosed, earned, and documented. Splitting fees with, or paying referral compensation to, unlicensed persons violates both the model act and RESPA's Section 8 where settlement referrals are involved. When a fee's earner cannot be named or its service cannot be shown, the fee is the violation.
Worked example
A top producer's practices surface in an exam: he pays a car dealer $200 per funded referral ('the dealer doesn't originate, he just sends buyers'), charges a $495 'processing acceleration fee' no one can tie to a service, and his MU4 still shows his old address and omits a 2024 state consumer-protection consent order. Score the conduct list.
The dealer payments: referral compensation to an unlicensed person — a model-act violation (and if the referrals touch settlement services, a RESPA Section 8 companion count); 'he doesn't originate' is exactly why paying him for loan referrals is barred. The $495 fee: unearned and undisclosed-in-substance — a fee without a service is the definitional violation; expect restitution plus penalties. The MU4: a stale address is a currency violation; the omitted consent order is a material omission on a regulatory record — the per-se revocation ground, and the most serious of the three because it is a lie to the regulator itself. One producer, three list items: unlicensed compensation, unearned fees, false NMLS records.
Common exam pitfalls
Paying 'thank you' money to unlicensed referrers.
Licensable-activity compensation to unlicensed persons is prohibited — volume-based referral pay doubly so under RESPA.
Inventing fees with impressive names.
Every fee needs an identifiable, performed service and disclosure. Unearned fees are a per-se list item.
Treating the MU4 as set-and-forget paperwork.
It is a living regulatory record — amendments filed promptly; omissions are independent revocation grounds.
Earn every fee, license every hand, and never lie to the record.
Recap
- Conduct list: no fraud, deception, unearned fees, unperformed services
- No false statements or omissions to regulators/NMLS; no obstruction
- No appraiser influence; no unlicensed-person compensation
- Records ~3 years, producible on demand
- MU4 current and truthful — amendments are your duty
- Fees: disclosed, earned, documented, through the company
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