QUESTION
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?
ANSWER
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.
Jonathan Foxx
Chairman & Managing Director
Lenders Compliance Group
