Thursday, April 2, 2020

Transitioning Loan Officer as Employee

A while back Jonathan Foxx discussed the transitioning of loan officers. He wrote about how to handle the licensing issues so that new loan officers can get to work. The questioner asked about transferring loan officers from their bank registration to become licensed loan officers. My question also deals with transitioning. Is a transitioning loan officer an employee?

Click Transitioning Loan Officer Licensing to read the post we published on November 7, 2019. I continue to see employers struggling with the issue of how best to effectuate the transitioning of a loan officer.

Indeed, it was in November 2019 that the CFPB issued an interpretive rule to construe an ambiguity regarding certain non-licensed loan originators. The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (EGRRCP Act) made it easier for loan originators to move from one employer to another, by giving a registered or state-licensed loan originator temporary authority to act as a loan originator in a different state if he or she:
  • Has not had an application for a loan originator license denied or a loan originator license revoked or suspended;
  • Has not been subjected to or served with a cease and desist order;
  • Has not been convicted of a misdemeanor or felony that would preclude licensing in the new state;
  • Has submitted an application to be a state-licensed loan originator in the new state; and,
  • If applicable, was registered in the NMLSR as a loan originator during the 1-year period preceding the filing of the new application.

The statute separately addresses registered loan originators and state-licensed loan originators.

Regulation Z imposes training requirements on loan originator organizations for “each of its individual loan originator employees who
  • is not required to be licensed, and
  • is not licensed as a loan originator….”

This language, which the CFPB adopted before the EGRRCP Act existed, is ambiguous regarding whether the individual loan originators it references include loan originators with temporary authority under the EGRRCP Act. Accordingly, on November 19, 2019, the CFPB adopted an interpretive rule to address the ambiguity.

In its interpretive rule, the CFPB took the position that, although the language is ambiguous, the Bureau believes the most appropriate interpretation of Regulation Z is that the regulation does not refer to a loan originator with temporary authority under the EGRRCP Act, because a loan originator with temporary authority does not satisfy the first condition in Regulation Z § 1026.36(f)(3)—“is not required to be licensed.”

That is, to point a fine point on it, a loan originator with temporary authority is not an “individual loan originator employee … who is not required to be licensed….” He or she is an employee who is required to be licensed, although the employee can act as a loan originator while seeking the required license.

The CFPB issued its interpretation as an interpretive rule to further ensure that TILA § 130(f) offers a safe harbor to loan originator organizations that act in conformity with the interpretive rule. [84 FR 63791 (Nov. 19, 2019)] The Bureau plans to incorporate the interpretive rule into Regulation Z.

Jonathan Foxx
Chairman & Managing Director
Lenders Compliance Group