An actual settlement cost unexpectedly increases by $400 despite an estimate based on the best information reasonably available when disclosed, creating a tolerance cure. The branch proposes reducing the originator's commission on that loan by $400 solely to cover it, not as a pricing concession or planned adjustment. Does Regulation Z's compensation rule prohibit this reduction?
Correct Answer
A) No: the rule permits a reduction to absorb this qualifying unforeseen settlement-cost increase
A. This qualifying reduction is permitted under the cited compensation interpretation. The exception concerns genuinely unforeseen actual settlement costs, including a qualifying tolerance cure. Late discovery alone is insufficient; the original estimate must have used the best information reasonably available. Scope and exceptions: The rule permits, rather than requires, the reduction. It does not resolve employment contracts or wage law, and does not excuse the required consumer cure or disclosure. Known costs or ordinary price concessions cannot be relabeled unforeseen. Source: Comment 36(d)(1)-7, including example ii — https://www.consumerfinance.gov/rules-policy/regulations/1026/36/
Why This Is the Correct Answer
A. This qualifying reduction is permitted under the cited compensation interpretation. The exception concerns genuinely unforeseen actual settlement costs, including a qualifying tolerance cure. Late discovery alone is insufficient; the original estimate must have used the best information reasonably available. Scope and exceptions: The rule permits, rather than requires, the reduction. It does not resolve employment contracts or wage law, and does not excuse the required consumer cure or disclosure. Known costs or ordinary price concessions cannot be relabeled unforeseen.
Why the Other Options Are Wrong
Option B: Prohibited: originator pay may never be reduced for any reason at all
The commentary expressly permits certain decreases.
Option C: Permitted only where the reduction is under 10% of the total commission
It sets no 10%-of-commission cutoff.
Option D: Prohibited unless the originator agrees to the reduction in writing first
Written agreement is not the condition establishing this Regulation Z exception.
Exam Tip
Document why the cost was unforeseeable, not merely when someone noticed it.
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