Ethics · 18% of the SAFE examhard
Correct answer: Plan A is compliant; Plan B violates the LO Compensation Rule because the bonus is tied to a loan term (interest rate)
Under the LO Compensation Rule (Regulation Z), Plan A is permissible — a flat percentage of the loan amount does not create an incentive to steer borrowers to unfavorable terms. Plan B violates the rule because the $500 bonus is directly tied to the interest rate exceeding the market average — interest rate is a 'term of the transaction,' and compensation cannot be based on a loan term. The fact that Plan B's base percentage is lower than Plan A's does not justify or offset the prohibited bonus structure. "Plan A is compliant; Plan B violates the LO Compensa..." is wrong — flat percentage compensation is explicitly permitted. "Plan B is compliant because the base compensation is..." incorrectly assumes that lower base compensation creates a safe harbor for prohibited incentives.
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