Supporting Statement LO Compensation final rule 2-7-2013-final version

CONSUMER FINANCIAL PROTECTION BUREAU
INFORMATION COLLECTION REQUEST – SUPPORTING STATEMENT
LOAN ORIGINATOR COMPENSATION
(OMB CONTROL NUMBER: 3170-0031)
The Consumer Financial Protection Bureau (Bureau) is dividing certain proposals to amend the
Bureau’s Regulations X and Z into separate Information Collection Requests (ICRs) in the Office
of Management and Budget (OMB) system (accessible at www.reginfo.gov) to ease the public’s
ability to view and understand the individual proposals. Subsequent to the finalization of the
rules, CFPB anticipates that it will recombine the portions of Regulations X and Z that are
broken out in the reginfo.gov system into the existing control numbers for Regulations X and Z.
CFPB respondents should continue to use the 3170-0015 control number for Regulation Z and
3170-0016 control number for Regulation X throughout this time.
TERMS OF CLEARANCE: None
A. JUSTIFICATION
1. Circumstances Necessitating the Data Collection
Overview
The Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq., was enacted to foster comparison
credit shopping and informed credit decision making by requiring accurate disclosure of the costs
and terms of credit to consumers. Sections 1402 to 1405 of the Dodd-Frank Act added TILA
section 129B, 15 U.S.C. 1639b, to assure that consumers are offered and receive residential
mortgage loans on terms that reasonably reflect their ability to repay the loans and that are
understandable and not unfair, deceptive, or abusive.
Regulation Z was previously implemented by the Board of Governors of the Federal
Reserve System (Board) at 12 CFR part 226. In light of the general transfer of the Board’s
rulemaking authority for TILA to the CFPB, the CFPB adopted an interim final rule recodifying
the Board’s Regulation Z at 12 CFR part 1026. The CFPB enforces TILA as to certain creditors
and advertisers. TILA also contains a private right of action for consumers.
New TILA section 129B includes several new requirements, some of which necessitate
collections of information addressed in this Supporting Statement. Section 129B(b)(1)(A)
requires loan originators to be qualified and licensed or registered to the extent required by State
and Federal law, including the Secure and Fair Enforcement for Mortgage Licensing Act of 2008
(the SAFE Act).1 TILA section 129B(c)(1) prohibits loan originator compensation that varies
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12 U.S.C. 5101-5116.
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based on the terms of the loan. TILA section 129B(c)(2) provides that, if a consumer directly
pays the loan originator, the loan originator may not also receive compensation from any other
party in connection with that transaction, such as a creditor or brokerage firm. In addition, it
generally prohibits consumers from being charged discount points, origination points, or fees
where a loan originator is being compensated by a person other than the consumer, such as a
creditor or brokerage firm. However, it gives the CFPB authority to waive or create exemptions
from the prohibition on charging consumers discount points, origination points, or fees where
doing so is in the interest of consumers and in the public interest.
Through a final rule published in the Federal Register on February 15, 2013, the CFPB is
amending Regulation Z to implement the statutory provisions described above and to create
certain exemptions from the statutory provisions as permitted under the statute. As set forth
more fully below, the CFPB believes the following aspects of the final rule are information
collection requirements under the Paperwork Reduction Act (PRA).
Recordkeeping
Under Regulation Z currently, § 1026.25 requires creditors to retain evidence of
compliance with Regulation Z for a two-year period. The CFPB is adding § 1026.25(c)(2) to
establish record retention requirements for compliance with § 1026.36(d), which implements
many of the statutory requirements discussed above. Section § 1026.25(c)(2): (1) extends the
time period for retention by creditors of compensation-related records from two years to three
years; (2) requires loan originator organizations (i.e., generally, mortgage broker companies) to
maintain certain compensation-related records for three years; and (3) clarifies the types of
compensation-related records that are required to be maintained under the rule.
As noted above, the CFPB is extending creditors’ record retention requirements under
Regulation Z with respect to loan originator compensation records from two years to three years.
The change relates to the Dodd-Frank Act amendments of TILA that provide a cause of action
against any mortgage originator for failure to comply with the requirements of TILA section
129B and any of its implementing regulations and extend the statute of limitations for a civil
action alleging a violation of TILA section 129B to three years. 15 U.S.C. 1639b(d), 1640(e).
The CFPB believes this change will ensure records associated with loan originator compensation
are retained for a time period commensurate with the statute of limitations for causes of action
under TILA and are readily available for examination, which is necessary to prevent
circumvention of and to facilitate compliance with TILA. The CFPB also believes that it is
necessary to extend the Regulation Z record retention requirements to loan originator
organizations. Although creditors may retain some of the records needed to demonstrate
compliance with TILA section 129B and its implementing regulations, in some circumstances,
the records may be available solely from the loan originator organization. Thus, applying the
current two-year record retention period to information specified in § 1026.25(c), and only to
creditors, would adversely affect the ability of consumers to sustain actions under TILA. The
extension of the record retention requirement to three years and to cover loan originator
organizations also serves to maintain consistency between creditors and loan originator
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organizations.
Requirement to Obtain Criminal Background Checks, Credit Reports, and Other Information for
Certain Individual Loan Originators
Under the final rule, to the extent loan originator organizations employ or retain the
services of individual loan originators who are not required to be licensed under the SAFE Act
and who are not so licensed, the loan originator organizations are required to obtain a criminal
background check and credit report for the individual loan originators. Loan originator
organizations are also required to obtain from the Nationwide Mortgage Licensing System and
Registry (NMLSR) or the individual loan originators information about any findings against such
individual loan originators by a government jurisdiction. In general, the loan originator
organizations that are subject to this requirement are depository institutions (including credit
unions) and non-profit organizations whose individual loan originators are not subject to State
licensing. The burden of obtaining this information may be different for a depository institution
than it is for a non-profit organization because depository institutions already obtain criminal
background checks for their individual loan originators to comply with Regulation G and have
access to information about findings against such individual loan originators by a government
jurisdiction through the NMLSR.
2. Use of the Information
Federal and State enforcement agencies and private litigants use records retained under
the requirements of Regulation Z to ascertain whether the requirements under TILA and
Regulation Z have been met. The information retained provides the primary evidence of legal
violations in TILA enforcement actions brought by Federal agencies. Without the Regulation Z
recordkeeping requirement, the agencies’ ability to enforce TILA and Regulation Z would be
significantly impaired. See 15 U.S.C. 1607, 1640. Moreover, as discussed in item 1 above, the
CFPB believes it is appropriate to expand the time period for record retention to ensure records
associated with loan originator compensation are retained for a time period commensurate with
the statute of limitations for causes of action under TILA section 130, and the CFPB believes it
is appropriate to subject loan originator organizations to the record retention requirements.
3. Use of Information Technology
Regulation Z permits creditors to retain records by any method that reproduces records
accurately, including computer programs. Unless otherwise required, creditors need only retain
enough information to reconstruct the required disclosures or other records. Comment 25(a)-2.
As discussed in Part IX of the final rule, the CFPB believes that for most, if not all firms, the
required records are kept in electronic form currently.
4. Efforts to Identify Duplication
The recordkeeping requirements of § 1026.25(c) are requirements to preserve certain
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documents related to the rules on loan originator compensation. The creditor and the loan
originator organization generally are the only sources of this information.2 No other Federal law
mandates these required actions.
5. Efforts to Minimize Burdens on Small Entities
TILA and Regulation Z recordkeeping requirements currently are imposed on all
creditors, including small entities. As discussed in item 1 above, the CFPB is imposing
additional recordkeeping requirements, which would extend the retention period for creditors to
three years and subject loan originator organizations to similar recordkeeping requirements for
three years. As discussed in item 12 below, for the final rule’s extension of the record retention
requirement for creditors from two years, as currently provided in Regulation Z, to three years,
the CFPB assumes that there is no additional marginal cost because, for most if not all firms, the
required records are kept in electronic form currently. Thus, all creditors should be able to use
their existing recordkeeping systems to maintain the required documentation for loan originator
compensation records for one additional year at a negligible cost of investing in new storage
facilities. The CFPB acknowledges that loan originator organizations will incur costs from the
new requirement to retain records related to compensation.
CFPB does not believe these requirements would unduly burden small entities, however.
Most creditors and loan originator organizations today use some degree of computerization in
their business, and Regulation Z permits businesses to rely on computer support, among other
alternatives, to meet their recordkeeping requirements. This flexibility yields reduced
recordkeeping costs. During the Small Business Review Panel process prior to the proposal,3
moreover, the small entity representatives (SERs) were asked about their current record
retention practices and the potential impact of the proposal under consideration to enhanced
record retention requirements. Of the few SERs that gave feedback on the issue, one creditor
SER stated that it maintained detailed records of compensation paid to all of its employees and
that a regulator already reviews its compensation plans regularly, and another creditor SER
reported that it did not believe the record retention requirements would require it to change its
current practices.
2

As explained in the section-by-section analysis to § 1026.25(c)(2), the CFPB is not imposing record retention
requirements on individual loan originators even though the individual loan originator may have a copy of the
records to be retained in some cases and TILA, as amended by the Dodd-Frank Act, permits consumers to bring
actions against individual loan originators. Under the record retention requirements, loan originator organizations
and creditors must retain certain records regarding all of their individual loan originators, so the CFPB believes that
applying the same record retention requirements to the individual loan originators themselves would be duplicative.
In addition, such a requirement may not be feasible in all cases, because individual loan originators may not have
access to the types of records required to be retained under § 1026.25, particularly after they cease to work for the
creditor or loan originator organization.
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The Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) requires the CFPB to convene a
Small Business Review Panel before proposing a rule that may have a substantial economic impact on a significant
number of small entities. See Pub. L. 104-121, tit. II, 110 Stat. 847, 857 (1996) (as amended by Pub. L. 110-28,
section 8302 (2007)).
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With regard to the loan originator screening requirements, the CFPB does not believe
these requirements will unduly burden small entities. The CFPB believes that virtually all of the
affected entities already have adopted these types of screening requirements, either to satisfy
safety-and-soundness requirements or as a matter of good business practice. For any entity that
adopts screening requirements in the first instance, the CFPB estimates the costs to include the
cost of a criminal background check and the time involved in checking employment and
character references of an applicant. But for small entity depository institutions, the CFPB
estimates that many of these requirements will have negligible burdens (see item 12 below).4
6. Consequences of Less Frequent Collection and Obstacles to Burden Reduction
The current record retention period of two years under Regulation Z supports private
actions and regulatory enforcement actions. As discussed in item 1 above, the final rule’s threeyear retention period for creditors and loan originator organizations is commensurate with the
statute of limitations for causes of action against loan originators under TILA, as revised by the
Dodd-Frank Act. Thus, without these requirements, consumers’ right to sue under TILA would
be undermined, and enforcement agencies could not fulfill their mandate to enforce TILA.
The screening requirements implement the Dodd-Frank Act section 1402 provisions
regarding the qualification of loan originators. The primary benefits to consumers of the
qualification provisions of the final rule are the stricter screening of individual loan originators,
on an ongoing basis after implementation of the final rule and with regard to some loan officers
currently employed who have not previously been screened, with backgrounds suggesting they
could pose risks to consumers and will raise the level of loan originator expertise regarding the
origination process. As the CFPB explained in Part VII of the final rule, (the Dodd-Frank Act
section 1022(b)(2) analysis), both of these effects will likely decrease the harm that could be
borne, unknowingly at the time of origination, by any individual consumer. The consequence of
less frequent collection, thus, would be a failure to so enhance the accuracy of the consumer’s
evaluation of the expertise of the loan originator and the protection afforded to the consumer
against the possibility of such harm.
7. Circumstances Requiring Special Information Collection
There are no special circumstances. The collection of information is conducted in a
manner consistent with the guidelines in 5 CFR 1320.5(d)(2)
8. Consultation Outside the Agency
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The response in item 12 below describes how depository institutions already obtain criminal background
checks for each of their individual loan originators through the NMLSR for purposes of complying with Regulation
G and obtain and have access to information about government jurisdiction findings against their individual loan
originators through the NMLSR.
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On September 7, 2012, the CFPB published a notice of proposed rulemaking in the
Federal Register for public comment. The comment period with respect to the PRA analysis
ended on November 6, 2012. The Bureau did not receive any comments pertaining to the
Paperwork Reduction analysis of these recordkeeping requirements. Prior to issuing both the
proposed rule and final rule, the CFPB consulted with other Federal agencies consistent with
section 1022 of the Dodd-Frank Act and consulted with affected small entities through a Small
Business Review Panel convened under SBREFA. The CFPB also consulted with other
stakeholders, including roundtables with industry representatives and consumer advocacy groups.
9. Payments or Gifts to Respondents
Not applicable.
10. Assurances of Confidentiality
There are no assurances of confidentiality provided to respondents.
11. Justification for Sensitive Questions
There is no information of a sensitive nature being requested.
12. Estimated Burden of Information Collection
Related ICRs
ICRs that have been submitted by other Federal agencies under Regulation Z and that
may relate to this ICR include the following:
Federal Reserve System: Reporting, Recordkeeping and Disclosure Requirements in
Connection with Regulation Z (Truth in Lending) and Section 227.28 of Regulation AA
(Unfair or Deceptive Acts or Practices (UDAP)), control number 7100-0199;
Federal Deposit Insurance Corporation: Recordkeeping and Disclosure Requirements in
Connection with Regulation Z (Truth in Lending), control number 3064-0082;
Office of the Comptroller of the Currency: Record and Disclosure Requirements – FRB
Regulations B, C, E, M, Z, CC, and DD, control number 1557-0176; and
Federal Trade Commission: Regulation Z (Truth in Lending), control number 3084-0088.
Overview
Under the final rule, the CFPB accounts for the paperwork burden associated with
Regulation Z for the following respondents pursuant to its administrative enforcement authority:
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insured depository institutions with more than $10 billion in total assets, their depository
institution affiliates, and certain non-depository institutions. The CFPB and the Federal Trade
Commission (FTC) generally both have enforcement authority over non-depository institutions
for Regulation Z. Accordingly, the CFPB has allocated to itself half of the estimated burden for
non-depository institutions. Other Federal agencies, including the FTC, are responsible for
estimating and reporting to OMB the paperwork burden for the institutions for which they have
administrative enforcement authority. They may, but are not required, to use the CFPB’s burden
estimation methodology.
Using the CFPB’s burden estimation methodology, the total estimated burden for the
approximately 22,800 institutions subject to the final rule, including CFPB respondents,5 would
be approximately 64,600 hours annually and 164,700 one-time hours. For the CFPB respondents
subject to the final rule, the estimates for the ongoing burden hours are approximately 32,000
annually, and the total one-time burden hours are roughly 82,000.
The aggregate estimates of total burdens presented in this Supporting Statement are based
on estimated costs that are averages across respondents. The CFPB expects that the amount of
time required to implement each of the changes for a given institution may vary based on the
size, complexity, and practices of the respondent.
Recordkeeping
For the final rule’s extension of the record retention requirement for creditors from two
years, as currently provided in Regulation Z, to three years, the CFPB assumes that there is no
additional marginal cost. For most, if not all firms, the required records are in electronic form
currently. The CFPB believes that, as a consequence, all creditors should be able to use their
existing recordkeeping systems to maintain the required documentation for loan originator
compensation records for one additional year at a negligible cost of investing in new storage
facilities.
Loan originator organizations, but not creditors, will incur costs from the new
requirement to retain records related to compensation. For the requirement that organizations
retain records related to compensation on loan transactions, these firms will need to build the
requisite record retention capacities. At some firms this may require the integration of
information technology systems; for others simple reports can be generated from existing core
systems.
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For purposes of this PRA analysis, the CFPB’s respondents under Regulation Z are 135 depository institutions
that originate closed-end mortgages; 77 privately insured credit unions that originate closed-end mortgages; an
estimated 2,787 non-depository institutions that originate closed-end mortgages and that are subject to the CFPB’s
administrative enforcement authority, an assumed 230 not-for profit originators (which may overlap with the other
non-depository creditors); and 8,051 loan originator organizations. Unless otherwise specified, all references to
burden hours and costs for the CFPB respondents for the collection under Regulation Z are based on a calculation
that includes one-half of the burden for all respondents except the depository institutions.
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For the approximately 8,000 CFPB respondents that are non-depository loan originator
organizations but not creditors, the one-time burden is estimated to be roughly 163,400 hours to
review the regulation and establish the requisite systems to retain compensation information.
The CFPB estimates the requirement for these CFPB respondents to retain documentation of
compensation arrangements requires 64,400 ongoing burden hours, or approximately 8 hours per
organization, annually. The CFPB has allocated to itself one-half of this burden.

Requirement to Obtain Criminal Background Checks, Credit Reports, and Other Information for
Certain Individual Loan Originators
a. Credit Check
Under the final rule, both depository institutions and non-profit organizations will incur
ongoing costs related to obtaining credit reports for loan originators that are hired or transferred
into this function on or after January 10, 2014. For the approximately 370 CFPB respondents,
which include depository institutions over $10 billion, their depository affiliates, and non-profit
non-depository organizations, this one time estimated burden would be 25 hours, and the
estimated ongoing burden would be 90 hours.
b. Criminal Background Check
Depository institutions already obtain criminal background checks for each of their
individual loan originators through the NMLSR for purposes of complying with Regulation G. A
criminal background check provided by the NMLSR to the depository institution is sufficient to
meet the requirement to obtain a criminal background check in the final rule. Accordingly, the
CFPB believes they will not incur any additional burden.
Non-depository loan originator organizations that do not have access to information about
criminal history in the NMLSR, including bona fide non-profit organizations, can satisfy the
latter requirements by obtaining a national criminal background check.6 For the assumed 230
non-profit originators the one-time burden is estimated to be roughly 20 hours.7 The ongoing
cost to perform the check for new hires is estimated to be 10 hours annually. The CFPB has
allocated to itself one-half of these burdens.

6

This check, more formally known as an individual’s FBI Identification Record, uses the individual’s
fingerprint submission to collect information about prior arrests and, in some instances, federal employment,
naturalization, or military service.
7

The CFPB has not been able to determine how many loan originator organizations qualify as bona fide nonprofit organizations or how many of their individual loan originators are not subject to SAFE Act licensing.
Accordingly, the CFPB has estimated these numbers.
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c. Information About Findings Against the Individual by Government Jurisdictions
Depository institutions already obtain and have access to information about government
jurisdiction findings against their individual loan originators through the NMLSR. Such
information is sufficient to meet the requirement to obtain a criminal background check in the
final rule. Accordingly, the CFPB does not believe they will incur significant additional burdens.
The information for employees of non-profit organizations is generally not in the
NMLSR. Accordingly, under the final rule a non-profit organization would have to obtain this
information, for each loan originator it employs for whom it is not already known, using
individual loan originator statements concerning any prior administrative, civil, or criminal
findings. For the assumed 1,000 loan originators who are employees of bona-fide non-profit
organizations and about whom prior administrative, civil, and criminal findings are not already
known, the CFPB estimates that no more than 10 percent have any such findings by a
governmental jurisdiction to describe. The one-time burden is estimated to be 20 hours, and the
annual burden to obtain the information from new hires is estimated to be two hours.
13. Estimated Total Annual Cost Burden to Respondents or Recordkeepers
In addition to the hourly burdens above, non-depository loan originator organizations that
do not currently obtain national criminal background checks about their individual loan
originators and that will be required to do so under the final rule are estimated to incur a cost of
roughly $50 for each background check. Several commercial services offer an inclusive fee for
fingerprinting, transmission, and FBI processing.8 Moreover, for those entities required to order
credit reports, including depositories and bona fide non-profit loan originator organizations, the
CFPB estimates a cost of $5 per credit report because it is likely that relevant providers discount
the price per report which they charge these institutions. For the CFPB’s respondents, the total
one-time non-hourly burden costs are estimated to be $230,000 and the ongoing non-hourly
burden costs are estimated to be approximately $10,000.
14. Estimated Cost to the Federal Government
As the CFPB does not collect any information, the cost to the CFPB is negligible.
15. Program Changes or Adjustments

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Several commercial services offer an inclusive fee, ranging between $48.00 and $50.00, for fingerprinting,
transmission, and FBI processing. Based on a sample of three FBI-approved services: Accurate Biometrics,
available at: http://www.accuratebiometrics.com/index.asp; Daon Trusted Identity Servs., available at:
http://daon.com/prints; and Fieldprint, available at:
http://www.fieldprintfbi.com/FBISubPage_FullWidth.aspx?ChannelID=272.
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The CFPB is requiring creditors and loan originator organizations to retain evidence of
compliance with the loan originator compensation provisions of Regulation Z for three years
after consummation of the transaction.
The CFPB previously estimated the ongoing burden for Regulation Z based on the
assumption that the total ongoing burden for the regulation, across all agencies, remained the
same as it was before the regulation was restated by the CFPB. The CFPB used its own
methodology to estimate the one-time and ongoing burden for the information collections that are
affected by the loan originator compensation final rule, which may differ from the methodologies
employed by other agencies.
The CFPB makes no changes to the other information collections since the last OMB
approval.
16. Plans for Tabulation, Statistical Analysis, and Publication
The information collections are recordkeeping requirements. There is no publication of
the information.
17. Display of Expiration Date
After the Office of Management and Budget (OMB) concludes its review of the
information collection request (ICR) submitted thereto in accordance with 5 CFR 1320.11(f), the
CFPB will publish a notice in the Federal Register announcing OMB’s action on this ICR and, as
applicable, will display the OMB-assigned control number and expiration date expiration date
therein.
18. Exceptions to the Certification Requirement
None.

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