Screening and training requirements for financial institutions which employ loan originators with temporary authority are clarified under a rule released Friday by the federal consumer financial protection agency.
The interpretive rule issued by the Consumer Financial Protection Bureau (CFPB) clarifies that an employer of loan originators with temporary authority is not required to conduct screening and ensure the training of loan originators with temporary authority. The bureau said individual states will perform the screening and training as part of the review of an individual’s application for a state loan originator license.
In a release, CFPB noted that last year’s regulatory relief legislation (the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S.2155) established a third, additional category of loan originators – loan originators with temporary authority to originate loans.
According to the agency, loan originators with temporary authority are those 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. The bureau said loan originators with temporary authority may act as a loan originator for a temporary period of time, as specified in the statute, in a state while that state considers their application for a loan originator license.
The interpretive rule represents a departure for screening and training for the other two categories of loan originators: those working for state-licensed mortgage companies and those working for federally regulated financial institutions.
Under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act), before a state may issue a state-loan originator license, states must ensure that the individual never has had a loan originator license revoked; has not been convicted of enumerated felonies within specified timeframes; demonstrated financial responsibility, character, and fitness; completed 20 hours of pre-licensing education; and passed state specific testing requirements.
The bureau noted that under Regulation Z, which implements the Truth in Lending Act, employers must perform substantially the same screening of certain loan originators before permitting them to originate loans. Employers must also ensure certain training for those loan originators.
The interpretive rule takes effect Nov. 24.