Ethical and consumer protection responsibilities
Ethical and consumer protection responsibilities
This domain tests fair lending, UDAAP, RESPA Section 8, loan-originator compensation, privacy, and fraud prevention. The exam expects you to recognize a prohibited practice even when it is common in a sales culture.
Fair lending and disclosures
ECOA and the Fair Housing Act prohibit discrimination based on race, color, religion, national origin, sex, familial status, disability, and other protected bases. Provide adverse-action notices within 30 days of a completed application decision. Collect HMDA data when required. Steering a borrower to a higher-cost product or discouraging an application because of a protected characteristic is prohibited, even if the ultimate loan is approved.
Referral and compensation rules
RESPA Section 8 prohibits fees for referrals of settlement-service business. A payment must be for a bona fide service, reasonable in relation to the service, and not a disguised referral fee; disclosure alone does not cure a kickback. Regulation Z limits MLO compensation: no dual compensation from borrower and lender for the same transaction, no compensation based on loan terms, and no steering to an affiliate to increase compensation. GLBA and FCRA require safeguards, permissible purpose, and accurate privacy notices.
Fraud and Massachusetts overlay
Never falsify income, assets, occupancy, or identity. Massachusetts c. 93A and the HLPA add state consumer-protection exposure; borrower’s interest and ability-to-pay duties apply to high-cost loans.
Worked example
A realtor offers to send the MLO five purchase leads per month for a $500 monthly marketing payment, with no documented services. The MLO should refuse. The payment is contingent on referrals, not a bona fide service, so it violates RESPA Section 8 even if disclosed on an affiliated-business arrangement form. A compliant arrangement would pay fair market value for actual marketing work, documented and not tied to referral volume.
Traps
Do not think disclosure cures a kickback. Do not accept compensation from both the borrower and lender in a table-funded transaction. Do not use relationship or trusted-advisor language to justify steering. Do not ignore adverse-action timing after a counteroffer.