A CFL broker pays an originator 2.1% on loans over 7% and 1.4% on loans under it, arguing the state sets no rule. Does basing compensation on the loan’s interest rate comply with the federal originator-compensation rule?
Correct Answer
D) Prohibited: pay may not vary with the rate, under the federal rule that applies
Loan originator compensation may not be based on a term of the transaction, and the interest rate is the plainest term there is; a state licensee is subject to that federal rule whatever the state adds. Other choices: the absence of a state rule is not the absence of a rule; disclosure does not cure it; and the size of the differential is not the test. Source: 12 CFR 1026.36(d)(1)
Why This Is the Correct Answer
Loan originator compensation may not be based on a term of the transaction, and the interest rate is the plainest term there is; a state licensee is subject to that federal rule whatever the state adds. Other choices: the absence of a state rule is not the absence of a rule; disclosure does not cure it; and the size of the differential is not the test. Source: 12 CFR 1026.36(d)(1)
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