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CFPB amends Regulation Z to meet Dodd-Frank requirements

CFPB_LogoThe Consumer Financial Protection Bureau announced on Sunday that it was amending Regulation Z in accordance with the Dodd-Frank Act to implement amendments to the Truth in Lending Act.

The final rule “implements requirements and restrictions imposed by the Dodd-Frank Act concerning loan originator compensation; qualifications of, and registration or licensing of, loan originators; compliance procedures for depository institutions; mandatory arbitration; and the financing of single-premium credit insurance,” the CFPB said, MortgageOrb reports.

Dodd-Frank and Regulation Z prohibit compensation to a loan originator based on the terms and conditions, and the new rule also implements tests to be used to determine when loan originators can be compensated through certain profit-based arrangements. Dodd-Frank and Regulation Z also mandate that when a loan originator receives compensation directly from a consumer related to a mortgage loan, the loan originator may not receive compensation from another party involved in the same transaction, according to Lexology.

The CFPB also recently announced two rules that would prohibit mortgage lenders from pushing high-risk loans and ban the incentives by loan originators to sell bad loans to consumers that contributed to the recent financial crisis.

“Before the financial crisis, many mortgage borrowers were steered towards risky and high-cost loans because it meant more money for the loan originator,” CFPB Director Richard Cordray said, MortgageOrb reports. “These rules will hold loan originators more accountable by banning the incentives that led so many of them to direct consumers toward disaster.”

The new rules prohibit incentives and dual compensation systems that allowed loan originators to receive compensation from the consumer and another party, such as a creditor. The CFPB also issued screening standards for loan originators, including character and fitness requirements, criminal background checks and training requirements. The rules will take effect in January 2014.

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