A branch pays each originator a flat $1,150 per closed loan regardless of size, rate or product, plus a quarterly bonus from overall branch profit. Considering only the flat $1,150 payment, rather than the separately regulated profit bonus, is this compensation based on a loan term?
Correct Answer
A) The fixed $1,150 amount is not prohibited by the transaction-term compensation rule
A. The genuinely fixed per-loan payment is not based on a transaction term. The same predetermined amount applies without varying by rate, product or other terms. The commentary expressly recognizes a payment fixed in advance for each loan as a permissible basis under this prohibition. Scope and exceptions: The branch-profit bonus requires its own analysis under the applicable profits-based compensation provisions. This answer does not approve that bonus, dual compensation, steering or the entire employment arrangement. Source: Comment 36(d)(1)-2.i.E; section 1026.36(d)(1)(iv) — https://www.consumerfinance.gov/rules-policy/regulations/1026/36/
Why This Is the Correct Answer
A. The genuinely fixed per-loan payment is not based on a transaction term. The same predetermined amount applies without varying by rate, product or other terms. The commentary expressly recognizes a payment fixed in advance for each loan as a permissible basis under this prohibition. Scope and exceptions: The branch-profit bonus requires its own analysis under the applicable profits-based compensation provisions. This answer does not approve that bonus, dual compensation, steering or the entire employment arrangement.
Why the Other Options Are Wrong
Option B: Both are prohibited, as branch profit varies with the rates charged
It incorrectly condemns the fixed payment along with the bonus.
Option C: Both are permitted only where the borrower consents to the arrangement
Borrower consent does not create an exception to the compensation rules.
Option D: The $1,150 is prohibited, since paying per closed loan rewards closing
Rewarding completed loans is not itself term-based compensation.
Exam Tip
Evaluate each compensation component and each applicable prohibition separately.
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