CFPB Clarifies Rule on Loan Originators with Temporary Authority


The Consumer Financial Protection Bureau (CFPB) has issued an interpretive rule clarifying screening and training requirements for financial institutions which employ loan originators with temporary authority.

The interpretive rule, which takes effect Nov. 24, concludes that a loan originator organization is not required to comply with certain screening and training requirements under Regulation Z if the individual loan originator employee is authorized to act as a loan originator pursuant to the temporary authority described in the SAFE Act.

As the CFPB explains in a release, the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) established a national system for licensing and registration of loan originators. It contemplates two categories of loan originators, those working for state-licensed mortgage companies and those working for federally-regulated financial institutions.

Section 106 of the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA) establishes a third category, loan originators with temporary authority to originate loans. Loan originators with temporary authority are loan originators 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, in a state while that state considers their application for a loan originator license, the bureau explains.

All loan originators must satisfy certain criminal history screening and training requirements. Under the SAFE Act, before issuing 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.

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 clarifies that the employer is not required to conduct the screening and 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.

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