CFPB ISSUES INTERPRETIVE RULE ON SCREENING AND TRAINING OF MORTGAGE LOAN ORIGINATORS WITH TEMPORARY AUTHORITY
The Consumer Financial Protection Bureau recently issued an interpretive rule explaining that conducting screening and ensuring training of loan originators with temporary authority is not required under Regulation Z. The rule became effective November 24, 2019.
The Secure and Fair Enforcement for Mortgage Licensing Act envisions two types of loan originators, those working for state licensed mortgage companies and those working for Federally-regulated financial institutions. In 2018, Congress passed the Economic Growth, Regulatory Relief, and Consumer Protection Act amending the SAFE Act. Section 106 of the EGRRCPA established a third category of loan originators, those acting with temporary authority. This category of loan originators may act as loan originators on a temporary basis while their application is considered by state licensing authorities. These loan originators were previously registered or licensed, are employed by a state-licensed mortgage company, are applying for a new state loan originator license, and meet other criteria set out in the statute.
In general, under the SAFE Act, licensed loan originators must fulfill various screening and training requirements (e.g., demonstrated financial responsibility, 20 hours of pre-licensing education, never convicted of enumerated felonies). At the same time Regulation Z (implementing the Truth in Lending Act) imposes substantially the same screening requirements on loan originator organizations to screen and train employed loan originators who are not licensed by the state and are not required to be licensed pursuant to the SAFE Act.
Therefore, under the EGRRCPA amendment, it was ambiguous whether loan originators acting with temporary authority were subject to Regulation Z’s requirements and needed to be screened and trained before acting as a loan originator, or whether they could act as loan originators while state licensing authorities evaluated their applications. In its interpretive rule, the CFPB clarified that Regulation Z’s requirements do not apply to loan originators acting with temporary authority. Therefore, such loan originators could act while state licensing authorities evaluated their application without being in violation of Regulation Z.
Garris Horn frequently provides guidance on CFPB matters. For more information on this interpretive rule, or to discuss related matters, contact Troy Garris directly at 301-461-8952 or troy@garrishorn.com.
