Claiming the Federal Reserve is turning a blind eye to unintended consequences from the implementation of new regulation on loan originator compensation, two mortgage industry trade associations have filed suit against the central bank. The National Association of Independent Housing Professionals sued the Fed for its final rule on loan originator compensation and yield spread premium disclosure under Regulation Z. The NAIHP states the rule will put mortgage brokers "at a significant and a permanent competitive disadvantage and will stifle competition in the mortgage lending industry to the detriment of consumers." "The final rule is arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with law, and in excess of statutory jurisdiction and authority," according to the NAIHP lawsuit. The National Association of Mortgage Brokers also sued the Fed, seeking an injunction against the loan officer compensation rule. NAMB claims enforcement of the new rule "could cause devastating and irreparable harm to small business mortgage brokers, their loan officers and their entire staff." The NAMB board wants the Fed to withdraw its final ruling and allow the Consumer Financial Protection Bureau "to perform its mandated responsibilities in this area." Regulation Z, which is set to take effect April 1, prohibits payments to loan originators based on terms or conditions of the transaction other than the amount of credit extended. The new regulation is part of the Truth in Lending Act, which aims to increase consumer awareness of the costs associated with obtaining credit. Defraying a portion of the closing costs of a mortgage isn't unfair or deceptive as the Fed purports, according to the NAIHP law suit (available by clicking here). Calls to the named attorney on the lawsuit were not returned as of publication. A spokeswoman for the Fed said the central bank has no comment on the lawsuits. Write to Jason Philyaw.