U.S. Supreme Court speaks on loan officer exemption to FLSA: originators are not exempt

Today, the U.S. Supreme Court rendered a decision that will have a profound impact on lending institutions and the methods in which they compensate their loan origination staff. The Court considered legal issues associated with the U.S. Department of Labor’s (DOL) administrative rulemaking and guidance related to the issue of whether loan originators are exempt under the Fair Labor Standards Act (FLSA).

In 2006, the DOL issued an opinion that loan officers fall within the administrative exemption of its regulations and, thus, may be exempt from requirements related to minimum wage and overtime. This decision was a welcome relief to many banks and lending institutions. Then, four years later and without any notice, the DOL reversed course and declared that loan officers were NOT exempt under its rules.

The Mortgage Bankers Association (MBA) brought suit, and the case made its way to the Supreme Court. The MBA sought to limit the ability of an administrative agency to change its own guidance and rules without following certain rulemaking procedures that otherwise govern administrative agencies. Today, the Court rejected the MBA’s argument and found that the DOL’s actions were consistent with U.S. law.

The effect of this ruling is the immediate removal of any remaining doubt: mortgage loan originators are not exempt from provisions of the FLSA, and their employers must comply with applicable requirements established for certain sales employees, including the payment of minimum wage and overtime compensation.

Now, more than ever, it is incumbent upon all financial institutions to review their policies, procedures and job classifications for loan originators and to ensure that compensation plans and pay practices are consistent with federal law under the FLSA and the Dodd-Frank Act.

The case discussed above is Perez v. Mortgage Bankers Association, March 9, 2015, Case No. 13-1052. Read the Court’s opinion here.