For an application received by a creditor on and after April 1, 2011, the creditor and the broker, if applicable, are required to comply with the compensation rules promulgated by the Board of Governors of the Federal Reserve System (“FRB”) in Regulation Z §226.36(d). In a transaction in which the loan originator’s compensation is paid by the consumer, under §226.36(d), clients will need to identify the transaction as consumer paid compensation. Prior to April 1, 2011, a yield spread premium, rate premium, or other credit given the consumer could offset any or all prepaid finance charges. After April 1, 2011, the consumer paid compensation cannot be offset by the yield spread premium, rate premium, or other credit given the consumer. Other prepaid finance charges may still be offset by these premiums or credits. The reason for this is that if the credit offsets the consumer paid compensation, then part of the loan originator compensation is paid by a third party and part is paid by the consumer. That violates §226.36(d)(2), which requires that when the consumer pays the loan originator compensation directly, no other party may directly or indirectly compensation the loan originator.
