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Mortgage Loan Officers and the FLSA Overtime Pay Entitlement

Monday, June 30, 2014 - Article by: Lender411 Member

The Mortgage Bankers Association (MBA) will present its case against the Department of Labor (DOL) to the Supreme Court. The MBA seeks to vacate and set aside the DOLs 2010 Administrative Interpretation (2010 AI) which has established mortgage loan officers are entitled to overtime pay. The association will also seek to establish that the DOL must follow the process of notice and comment rulemaking whenever it changes the interpretation of its own guidelines. The source of this conflict goes back to the 2004 DOLs revision of administrative employees who are exempt from overtime requirements.

The Fair Labor Standards Act (FLSA or the Act) requires that employers pay overtime wages to employees who work more than 40 hours a week unless the employees are exempt from this entitlement. Before 2004, the Act provided the following exceptions:

any employee in a bona fide executive, administrative, or professional capacity[,]...or in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the Secretary[,]...) is exempt from the [m]inimum wage and maximum hour requirements otherwise required by the act

I suspect there have been circumstances that prompted the Agency to publish an interpretation of these exemptions, because in 1997, the DOL issued a letter that concluded that wholesale salesmen are not covered by the administrative exemption. Later, on 1999, the Department issued another letter that established loan officers are engaged in carrying out the employers day-to-day activities rather than in determining the overall course and policies of the business and thus the exemption does not applied to them as a class of employees. Then, in 2004, the administrative exemption was revised as follows:

The regulations state that the administrative exemption of section 213(a)(1) of the FLSA applies to an employee:

  1. Compensated on a salary or fee basis at a rate less than $455 per week
  2. Whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers
  3. Whose primary duty includes the exercise of discretion and independent judgement with respect to matters of significance

The 2004 revision included commentary specific to employees of financial institutions who sell financial products:

Employees in the financial services industry generally meet the duties requirements for the administrative exemption if their duties include work such as collecting and analyzing information regarding the customers income, assets, investments or debts; determining which financial products best meet the customers needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; 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.

This prompted the MBA to request an official interpretation from the Department as it applied to mortgage loan officers. In 2006, the DOL issued a response which concluded that:

[loan officers] ha[d] a primary duty other than sales, as their work include[d] collecting and analyzing a customer's financial information, advising the customer about the risks and benefits of various mortgage loan alternatives in light of their individual financial circumstances, and advising the customer about avenues to obtain a more advantageous loan program.

Based on this, the MBA concluded that mortgage loan officers were exempt from the overtime pay requirement. But in 2010, the DOL withdrew the 2006 letter (2010 AI).

The 2010 letter was prompted after court rulings like the Casas vs. Conseco Finance Corp. case in which a court found that mortgage loan officers who on a day to day basis sold the lending products designed by the Corporation, but who were not engaged in the day to day running of the business itself, were in fact non-exempt from the overtime pay requirements.

The DOLs withdrawal of its official and earlier interpretation (2006) was immediate, and the department failed to follow the established pattern of notice and comment rulemaking which would have allowed the participation of the interested parties on the reversal of the interpretation.

I think the DOLs action is arbitrary; the MBA expressly requested an interpretation from the Department. The MBA is not the only civic group that feels the DOL flip flop is inappropriate. Legal scholars from the George Washington University, and other members of the legal field understand the negative implications this action. So I am happy the MBA will have the opportunity to present this case.



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