What measure did the Dodd-Frank Act enact to eliminate predatory loan originator compensation practices?

What measure did the Dodd-Frank Act enact to eliminate predatory loan originator compensation practices?

• A. The law prohibits compensation in any way being paid by the borrower
• B. Prohibits the use of yield spread in any compensation calculation
• C. Restricts compensation being paid to originator by any other source if the borrower in any way is paying fees that compensate the originator
• D. Caps yield spread applied towards any compensation to one percent (1%)

Answer: (C)

Dodd-Frank set up rules to curb conflicts of interest by limiting how loan originators can be compensated. The key idea is to prevent “dual compensation”—getting paid by more than one source for the same loan based on its terms. The measure described here does exactly that: if the borrower is paying fees that compensate the originator, the originator cannot also be paid by another source for that loan. This reduces incentives to steer borrowers into more expensive or riskier loans just to boost the originator’s pay. Historically, compensation tied to loan terms (like yield-spread-based pay) created strong incentives to push certain products, so eliminating multi-source compensation helps protect borrowers. The other options don’t capture this single-source, no-double-dipping restriction and aren’t how the rule is framed.

Dodd-Frank set up rules to curb conflicts of interest by limiting how loan originators can be compensated. The key idea is to prevent “dual compensation”—getting paid by more than one source for the same loan based on its terms. The measure described here does exactly that: if the borrower is paying fees that compensate the originator, the originator cannot also be paid by another source for that loan. This reduces incentives to steer borrowers into more expensive or riskier loans just to boost the originator’s pay. Historically, compensation tied to loan terms (like yield-spread-based pay) created strong incentives to push certain products, so eliminating multi-source compensation helps protect borrowers. The other options don’t capture this single-source, no-double-dipping restriction and aren’t how the rule is framed.