Loan Officer Compensation: Overtime Pay or No Overtime Pay?
The Mortgage Bankers Association has filed suit in federal court in an effort to reverse a March 2010 ruling by the Department of Labor (DOL) requiring that loan officers be paid overtime. That DOL Wage and Hour Division Administrators Interpretation reversed a previous opinion that MBA members had been operating under since 2006 that had exempted mortgage loan officers from the overtime provision of the Fair Labor Standards Act (FLSA.)
FLSA, which was originally enacted in 1938, requires that employers covered by the statute pay overtime wages to employees who work more than 40 hours per week unless they are specifically exempted. Such an exemption applies to employees operating in a bona fide administrative capacity.
The regulations defining FLSA requirements have been periodically revised, most recently in August 2004 and, according to the suit, until last March these revisions were announced by written "Opinion Letters" in response to questions from private parties about application of the regulations and these Opinion Letters have been held by courts to constitute final agency action. MBA maintains that since March 2010 DOL has issued "Administrator Interpretations" without prior notice or any opportunity for public comment or public hearings.
In August 2004 DOL promulgated a regulation that said employees in the financial services industry generally meet the duties requirements for the administrative exemption if those duties include work such as collecting and analyzing customer information, determining and advising the customer on which financial products meet his needs, and marketing, servicing or promoting the employers financial products. "However, an employee whose primary duty is selling financial products does not qualify for the administrative exemption." Other language, however, somewhat exempted an employee whose administrative duties included some sales.
On September 8 2006, DOL sent MBA an Opinion Letter in which it opined that employees largely employed to fulfill administrative functions but who also performed a marketing function still qualified for the exemption. MBA said in its suit that, in reliance on this interpretation, employers in the financial services industry, have classified mortgage loan officers as exempt employees and as such they generally are not paid hourly or overtime wages, "but are well-compensated by other means, including salary, bonus and commissions."
On March 24, DOL issued an Interpretation reversing and withdrawing the 2006 letter and declaring that a loan officer "whose hypothetical 'typical' job duties were to "receive internal leads and contact potential customers or receive contacts from customers generated by direct mail or other marketing activity...collect required financial information from customers they contact or who contact them...assess the loan products identified and discuss with the customers the terms and conditions of particular loans, trying to match the customers' needs with one of the company's loan products..." had a primary duty of non-administrative-exempt sales, and did not qualify for the FLSA;s administrative exemption.
MBA claims that DOL has admitted that this letter represented a substantial change in its interpretation of its own regulation and that it was issued without any prior public notice or without providing any prior opportunity for MBA or other interested parties to comment or without holding or offering to hold public hearings.
The Association said that its members and other interested parties now face substantial exposure to lawsuits alleging that "well-compensated mortgage loan officers are misclassified and are entitled to collect both back overtime wages and penalties." MBA President and CEO John Courson said that the ruling could also require lenders to make costly changes to their internal operations and compensation structure and that these costs would be passed through to the consumer. The regulations, he said, will also deprive loan officers and their customers of the flexible schedules they have enjoyed without increasing their compensation.
The suit asks the court to declare that DOL violated the Administrative Procedures Act under which the suit is filed and to set aside the Administrator's Interpretation and prevent its application and enforcement.
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