The Federal Reserve Board (Fed) has filed their response to the appeal in the Loan Originator Compensation rule lawsuit. After trial Judge Beryl Howel denied the request for a preliminary injunction temporarily halting the implementation of the rule, the National Association of Mortgage Brokers (NAMB) and the National Association of Independent Housing Professionals, Inc (NAIHP) immediately filed an appeal with the U.S. Court of Appeals.
In the response, the Fed addresses the three areas that NAMB and NAIHP used to support their claim in the appeal. The first key point is whether the Fed exceeded their authority to promulgate the rule. The filing argues that the appellants erred in their interpretations of TILA section 1639(1)(2) limiting the Fed's authority to establish such rules. They argue that the statue provides the authority to prohibit any practices that they deem to be unfair or deceptive in connection with mortgage transactions, without limitation on parties or types of transactions.
The second element responds to the appellant's claim that the rule is "arbitrary or capricious," which the NAMB and NAIHP must establish in order to successfully challenge the rule. In first challenging the claim that the Fed relied on limited studies to determine the impact of the rule, they noted that the cited studies were only representative of a broader range of evidence supporting the rule.
NAIHP argued that the rule is arbitrary and capricious because it exempts creditors from its effects. The Fed, however, states that the rule does impose the same requirements on creditors' employees as on other loan originators. This aligns with the intention of the rule as the goal was to regulate compensation in interactions directly with consumers. They state that transactions by creditors on the secondary market do fall outside the scope of their authority under TILA. Essentially, the Fed claims, the rule serves to reduce incentives to provide consumers with a mortgage loan that fails to meet their needs for the sole purpose of increasing the originator's compensation.
The last element relates to a claim that the Fed failed to comply with the Regulatory Flexibility Act (RFA) in assessing the potential impact of the rule on small entities. The Fed agrees with the lower court ruling that these requirements are "purely procedural" and "impose no substantive constraint on agency decision making." They state that their actions and analysis have fully complied with the RFA's requirements by providing a sufficient summary of the issues raised by public comments.
Finally, the Fed argues that the appellants have still failed to demonstrate irreparable harm stemming from the Rule as a whole, which in turn, requires the Appellate Court to follow the District Court ruling and deny the motion for a temporary injunction against the rule.
NAMB and NAIHP have until 10:00AM tomorrow, April 5th to file a response. The temporary stay against the rule also expires on Tuesday, April 5th.