The Consumer Financial Protection Bureau (CFPB) has issued an Interpretive Rule for one type of loan originator licensing. The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE ACT) of 2008 established a national system for licensing and registration of loan originators which envisioned two categories of licensing, one for originators working for state-licensed mortgage companies and those working for federally regulated financial institutions.
Subsequently, Regulation Z which interprets the Truth in Lending Act (TILA), established a third category of originators, those with temporary origination authority. These rules apply to individuals who 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 specified in the statute. Loan originators with temporary authority may act as a loan originator for a temporary period of time, as specified in the statute, while a state considers their application for a standard state license.
An ambiguity has existed as to the types of criminal history screening and training requirements the temporary applicant must undergo to obtain permission to originate loans. Under SAFE Act requirements, states must ensure that the individual has never had a loan originator license revoked; been convicted of enumerated felonies within specified timeframes; and has demonstrated financial responsibility, character, and fitness. In addition, he or she must complete 20 hours of pre-licensing education; and passed state specific testing requirements. Regulation Z requires employers to perform substantially the same screening and training of the temporary loan originators before permitting them to originate loans.
The interpretive rule, which takes effect on November 24, clarifies that the employer is not required to conduct the duplicative screening nor ensure the training of loan originators with temporary authority. The state will perform the screening and training as part of its review of the individual's application for a state loan originator license. This essentially exempts the employer from liability for any act done or omitted in good faith in conformity with this interpretive rule.
CFPB plans to incorporate the content of this interpretive rule into the Official Interpretations to Regulation Z at a later date.