IBA Compliance Connection

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We compensate our loan originators based on loan volume. We are considering hiring a loan originator who would act as a team lead who would manage other loan originators. To incentivize this employee to mentor and encourage those team members, we would like to compensate the team lead for the production of the team members. Can we compensate a loan originator for loans originated by other employees?

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Yes, we believe that your bank may compensate loan originators based their team members’ loan volume (in addition to their own loan volume).

Regulation Z prohibits loan originator compensation that is based on the terms of the transactions that they originate. But this prohibition does not apply to compensation based on an individual loan originator’s loan volume, because a loan originator’s overall loan volume is not a “term of a transaction or a proxy for a term of a transaction.” We believe the overall loan volume of a loan originator’s team also is a permissible basis for loan originator compensation.

For resources related to our guidance, please see:

  • Regulation Z, 12 CFR 1026.36(d) (“. . . no loan originator shall receive and no person shall pay to a loan originator, directly or indirectly, compensation in an amount that is based on . . . the terms of multiple transactions by multiple individual loan originators. . . .”)

  • Regulation Z, Official Interpretations, 12 CFR 1026, Paragraph 36(d)(1), Comment 2(i)(A) (“Compensation based on the following factors is not compensation based on a term of a transaction or a proxy for a term of a transaction: The loan originator’s overall dollar volume (i.e., total dollar amount of credit extended or total number of transactions originated), delivered to the creditor.”)