A branch pays each originator the same 1.1% on every file, then at year end pays a bonus from the profit on the 240 loans the branch closed. How should the fixed-percentage pay and mortgage-profit bonus be evaluated under Regulation Z's compensation rule?
Correct Answer
A) The 1.1% is clean; the profits bonus falls under its own limited rules
A. Evaluate the fixed percentage and profits bonus separately. A fixed percentage of credit extended is permitted under the cited transaction-term rule. Mortgage-profit bonuses have separate conditions. The branch’s 240 loans do not establish the individual originator’s transaction count or the bonus’s share of total compensation. For a non-deferred mortgage-profits plan, compensation must not be based on the terms of that individual originator’s transactions. In addition, either the aggregate plan compensation must not exceed 10% of the individual’s corresponding total compensation, or the individual must have originated ten or fewer consummated transactions in the preceding 12 months. The branch’s 240 loans supplies neither individual test. Scope and exceptions: For a non-deferred profits-based plan, review the individual-term restriction and applicable percentage or individual-transaction conditions. The stem lacks enough information to approve the bonus; this does not certify compliance with all compensation rules. Source: 1026.36(d)(1)(ii), (iv); interpretation 36(d)(1)-3 — https://www.consumerfinance.gov/rules-policy/regulations/1026/36/
Why This Is the Correct Answer
A. Evaluate the fixed percentage and profits bonus separately. A fixed percentage of credit extended is permitted under the cited transaction-term rule. Mortgage-profit bonuses have separate conditions. The branch’s 240 loans do not establish the individual originator’s transaction count or the bonus’s share of total compensation. For a non-deferred mortgage-profits plan, compensation must not be based on the terms of that individual originator’s transactions. In addition, either the aggregate plan compensation must not exceed 10% of the individual’s corresponding total compensation, or the individual must have originated ten or fewer consummated transactions in the preceding 12 months. The branch’s 240 loans supplies neither individual test. Scope and exceptions: For a non-deferred profits-based plan, review the individual-term restriction and applicable percentage or individual-transaction conditions. The stem lacks enough information to approve the bonus; this does not certify compliance with all compensation rules.
Why the Other Options Are Wrong
Option B: Both are prohibited, since branch profit moves with the rates charged
Incorrectly prohibits the fixed percentage.
Option C: The profits bonus is clean and the 1.1% is the part that is prohibited
Reverses the treatment and assumes the bonus qualifies.
Option D: Both are clean, because neither is tied to any 1 borrower's terms
Terms of multiple transactions can matter even without a single-loan link.
Exam Tip
Branch volume is not an individual compensation test.
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