Employers in the mortgage-lending arena continue to be targeted by a burgeoning cottage industry of wage-and-hour plaintiffs attorneys intent upon filing class actions. The suits being filed claim that exempt employees have been misclassified and are owed unpaid overtime. Recent developments have thickened the plot in this ongoing saga. Federal regulators reversed course on earlier opinions that were helpful to mortgage industry employers. And in another development, a federal appellate court issued a decision that flies in the face of established industry practices. The legal fray, which at one time focused on challenges to loan officer classification, has now spread to include underwriters. Mortgage lending institutions, brokers and other industry players are well advised to stay abreast of these changes and adjust their best practices and compliance programs as needed, lest they join the expanding ranks of industry employers called upon to defend their classification decisions in class-action litigation.
The federal government's shifting views on loan officers
Under the federal Fair Labor Standards Act (FLSA), employees are owed an overtime premium (one and one-half times the employee's regular rate of pay) for each hour worked in excess of 40 in a work week--unless the employee falls within a recognized exemption.
Employers in the mortgage industry, large and small, have routinely classified loan officers as exempt employees. In the past, support for the exempt classification could be found, among other places, in a September 2006 opinion letter in which the U.S. Department of Labor (DOL) concluded that mortgage loan officers generally qualified for the "administrative exemption."
This exemption applies to employees who are paid at least $455 per week and are primarily engaged in the performance of "administrative" work. Such work consists of non-manual work directly related to the management or general business operations of the employer or its customers.
In order to qualify for the exemption, the employee's administrative work must require the exercise of discretion and independent judgment with respect to matters of significance. In its 2006 opinion letter, the DOL concluded that loan officers qualified for the administrative exemption because "they have a primary duty other than sales," and performed administrative work including analyzing customers' financial information, advising customers about the risks and benefits of various mortgage loan alternatives, and advising customers about avenues to obtain more advantageous loan programs.
This conclusion was consistent with a 2001 DOL opinion letter, where the agency similarly concluded that activities such as advising borrowers on the selection of a loan package qualified as exempt administrative work.
This regulatory landscape shifted suddenly in March 2010; when the DOL issued an interpretation memo determining that "typical" mortgage loan officers do not qualify for the FLSA's administrative exemption. In this Administrator's Interpretation (AI), the DOL places heavy emphasis on the issue of whether a loan officer's work is "administrative" in nature--that is, whether it relates to the running of the business itself, as opposed to the production of goods or services offered by the business.
In the current view of the DOL; because a typical loan officer is engaged principally in production activities such as sales and servicing customers, rather than administrative activities aimed at the internal management of the business, loan officers fall under the "production side of the business" and are not covered by the administrative exemption. The AI officially withdraws both the 2006 and the 2001 DOL opinion letters referenced here, each of which had expressed contrary views.
The DOL's reversal of its prior position has given rise to some well-founded consternation in the mortgage banking community. …