Supporting Statement for 3170-0031

BUREAU OF CONSUMER FINANCIAL PROTECTION
PAPERWORK REDUCTION ACT SUBMISSION
INFORMATION COLLECTION REQUEST
SUPPORTING STATEMENT PART A
LOAN ORIGINATOR COMPENSATION AMENDMENTS TO THE
TRUTH IN LENDING ACT
(REGULATION Z) 12 CFR 1026
(OMB CONTROL NUMBER: 3170-0031)
OMB TERMS OF CLEARANCE:
Not applicable. The Office of Management and Budget (OMB) did not provide Terms of
Clearance when approved this information collection on April 17, 2013.
ABSTRACT:
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. The Dodd-Frank Act then amended TILA to include, among
other things, provisions about the qualifications and compensation of mortgage loan officers, in
order to ensure consumers are getting a fair deal on their loans.

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 reasonable and fair.
TILA section 129B includes several 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 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
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12 U.S.C. 5101-5116.
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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 are
in the interest of consumers and the public.
Regulation Z to implements the statutory provisions described above and to creates 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
Section 1026.25(c)(2) establishes 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.
Requirement to Obtain Criminal Background Checks, Credit Reports, and Other Information for
Certain Individual Loan Originators
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
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requirement, the agencies’ ability to enforce TILA and Regulation Z would be significantly
impaired. See 15 U.S.C. 1607, 1640. Moreover, the CFPB believed it was 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
documents related to the rules on loan originator compensation. The creditor and the loan
originator organization generally are the only sources of this information2.
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 has imposed additional
recordkeeping requirements, which extend the retention period for creditors to three years and
subjects loan originator organizations to similar recordkeeping requirements for three years. As
discussed in item 12 below, in extending the record retention requirement for creditors 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 unduly burden small entities, however. Most
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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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 proposal3,
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.
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-andsoundness 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
Regulation Z supports private actions and regulatory enforcement actions. As discussed in
item 1 above, the three- year 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 are the stricter screening of individual loan originators, on an ongoing
basis and with regard to some loan officers currently employed who have not previously been
screened, with backgrounds suggesting they could pose risks to consumers . This will also raise
the level of loan originator expertise regarding the origination process. As the CFPB explained in
the Dodd-Frank Act section 1022(b)(2) analysis, both of these effects will likely decrease the harm
3

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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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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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
In accordance with 5 CFR §1320.8(d)(1), the Bureau has published a notice at Federal
Register allowing the public 60 days to comment on this proposed the extension (renewal) of
this currently approved collection of information. No comments were received. Further and
in accordance with 5 CFR §1320.5(a)(1)(iv), the Bureau has also published a notice in the
Federal Register allowing the public 30 days to comment on the submission of this
information collection request to the Office of Management and Budget.
9. Payments or Gifts to Respondents
No payments or gifts are provided to respondents.
10. Assurances of Confidentiality
No information is collected by the CFPB, except to the extent there is an enforcement
action by the CFPB against an entity affected by this rule. Information that may be collected for
law enforcement purposes would be covered by the following Systems of Records Notices
(SORNs): CFPB.004 Enforcement Database, 76 FR 45757, that can be found at
https://www.federalregister.gov/articles/2011/08/01/2011-19424/privacy-act-of-1974-as-amended;
and the CFPB.018 CFPB Litigation Files SORN, 77 FR 27446, that can be found at
https://www.federalregister.gov/articles/2012/05/10/2012-11233/privacy-act-of-1974-as-amended.
11. Justification for Sensitive Questions
Questions regarding prior misconduct are the most sensitive among the data that is being
collected. However, answers to these questions are essential for meeting the objectives of the loan
originator provisions of Regulation Z. This information is used by employers to ascertain whether
certain MLOs are prohibited from being hired due to violations of other financial statutory
requirements, or in general whether an individual is fit for employment by the institution. The
information is also used by consumers to ascertain the trustworthiness of the MLO they are
transacting with. Finally, Federal regulatory agencies use this information to ascertain whether
employers are meeting the requirements of using this system’s information to make judgments on
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MLO hires.
12. Estimated Burden of Information Collection
The CFPB accounts for the paperwork burden associated with Regulation Z for the
following respondents pursuant to its administrative enforcement authority: 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 its estimated burden to 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.
The CFPB estimates that there are 26,789 institutions subject to the rule, of which 142
depository institutions (DI) and half of the 16,223 non-depository loan originator institutions are
CFPB respondents. The CFPB respondents incur approximately 95,439 burden hours annually,
from information collections related to recordkeeping and background investigations of mortgage
loan officers (MLOs). The full calculations, including one-time burden for new entities to begin
compliance with the required collections, and the ongoing cost of maintaining compliance, are
shown in table 1.
Table1

Provision
1012.36(f)(3)(i)
1026.36(f)(3)(i)
1026.36(f)(3)(ii)(B)
1026.36(g)
1026.25(c)(2)(i)
1026.25(c)(2)(ii)

Information Collection
Criminal Background Check
Furnishing of credit info
Information about Findings Against the
Individual by Government Jurisdictions
Name and NMLSR ID on Loan Documents
Recordkeeping (Loan Originator Comp)
Recordkeeping (All outside compensation)

One Time Labor Burden
Ongoing labor Burden
Burden Per
Burden Per
Respondents
Respondents Responses
Response (hrs)
Response (hrs)
3
0.2
101
1,238
0.01
3
1.9
243
40,466
0.1
3

1

101

3
1,203
1,203

1
10
10

243
8,254
8,254
8,254

Total
16
4,275

1,238

0

3

0
8,254
8,254

0
4
4

3
45,169
45,169

49,958

94,635

For the required criminal background check, the CFPB assumes burden for the estimated
201 non-profit loan originator organizations that perform this collection for each new MLO hired,
for which the CFPB takes burden for 101 (half of the 201, rounded). The CFPB assumes 3 new
entrants each year into this space. The CFPB does not assume burden for private non-depository
loan originators because a criminal background check is performed in conjunction with state
licensing requirements required by Regulation H (SAFE). The CFPB also does not assume burden
for depository institutions that already perform a criminal background check under the FDIC act
sec. 19.
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For the required credit check, the CFPB assumes burden for the estimated 343 non-profit
loan originator and depository loan originators subject to CFPB supervision, for which the CFPB
takes burden for 201 (142 CFPB DIs plus half of the 201 non-profit organizations we take burden
for). The CFPB does not assume burden for private non-depository loan originators because a
credit check is already performed in conjunction with state licensing requirements required by
Regulation H (SAFE).
For the collection of information about government jurisdiction findings, the CFPB
assumes there is no ongoing burden to non-profit loan originators. Non-profit loan originators who
are not licensed by the state do not need to retrieve NMLSR reports, and are in compliance when
they are considering information collected during the usual interview process. For private loan
originators, this activity is performed in conjunction with other regulations described previously.
The CFPB also assumes no ongoing burden for putting the loan officer’s name and
NMLSR ID on loan documents, since this should be a one-time process to change forms and be set
after that.
The CFPB assumes burden associated with the recordkeeping requirements for all CFPB
supervised depository loan originators, and half of non-depository loan originators (142 CFPB DIs
and half of the 16223 non-DIs
13. Estimated Total Annual Cost Burden to Respondents or Recordkeepers
In addition to the burden above, there is a materials cost associated with collecting criminal
history and credit information. The costs are show in Table 2. For each information collection, the
CFPB assumes burden for the same sets of institutions described in section 12. The total cost
associated with the information collections for CFPB respondents is $265,388.
Table 2

Provision
1012.36(f)(3)(i)
1026.36(f)(3)(i)
1026.36(f)(3)(ii)(B)
1026.36(g)
1026.25(c)(2)(i)
1026.25(c)(2)(ii)

Information Collection
Criminal Background Check
Furnishing of credit info
Information about Findings Against the
Individual by Government Jurisdictions
Name and NMLSR ID on Loan Documents
Recordkeeping (Loan Originator Comp)
Recordkeeping (All outside compensation)

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Ongoing Materials Burden
Cost Per
Respondents
Responses
Response
101
1,238
$50
243
40,466
$5
101

1,238

$0

243
8,254
8,254

8,254
8,254

$0
$0
0

8,254

49,958

Total
$61,922
$203,465
$0
$0
$0
$0
$265,388

14. Estimated Cost to the Federal Government
As the Bureau does not collect any information, there are no costs to the Bureau
associated with this information collection.

15. Program Changes or Adjustments
Table 3
Total
Respondents
Total Annual Burden
Requested
Current OMB Inventory
Difference (+/-)
Program Change
Discretionary
New Statute
Violation
Adjustment

Annual Responses

8,254
11,280
-3,027
0
0
0
0
-3,027

Burden Hours

49,958
34,943
15,015
0
0
0
0
15,015

94,635
114,353
-19,718
0
0
0
0
-19,718

Cost Burden (O &
M)
$265,388
$240,054
$25,334
$0
$0
$0
$0
$25,334

The CFPB has decreased its estimate of total respondents by 3,027, increased its estimate of
annual responses by 15,015, and its estimate of cost burden by $25,344 annually as a result of
changes in the size of the covered market and new estimation techniques. The decrease of 19,718
annual burden hours is partially affected by the new estimations, but is also due to the exclusion of
one time burden that was counted under the initial rulemaking, but is no longer incurred by
existing entities. The adjustments to these numbers are shown in table 3.
16. Plans for Tabulation, Statistical Analysis, and Publication
The results of the information collection will not be published.
17. Display of Expiration Date
There is no information collection instrument associated with this OMB number on which
to display the expiration date. The OMB control number and expiration date associated with this
PRA submission will be displayed on the Federal government’s electronic PRA docket at
www.reginfo.gov.
18. Exceptions to the Certification Requirement
The Bureau certifies that this collection of information is consistent with the requirements
of 5 CFR 1320.9, and the related provisions of 5 CFR 1320.8(b)(3) and is not seeking an
exemption to these certification requirements.

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