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Lending

Court rules against MBA in loan officer compensation case

A United States District Court has ruled against the Mortgage Bankers Association in a case that will determine how loan officers are classified when it comes to standards of pay and overtime compensation.

The MBA told HousingWire it hasn't yet decided whether to appeal the case.

The U.S. District Court for the District of Columbia ruled in the MBA v. Solis case that the Labor Department was neither "arbitrary" nor "capricious" when it changed the agency's old interpretation of the Fair Labor Standards Act. The change effectively made most loan officers nonexempt employees when it comes to federal compensation and overtime guidelines.   

The distinction is a significant one since employers are not required to provide "exempt" employees with minimum wage and overtime compensation.

In a 2006 decision, the Labor Department said "although employees whose primary duty involves sales cannot qualify for the administrative exemption (or exempt employee status), many financial services employees could and had been found to fall under this exemption."

Six years ago, the Department of Labor said loan officers exempted from compensation and minimum wage requirements must have a primary duty other than loan sales such as collecting and analyzing customer data and advising customers about the risks and benefits of certain loans.

But the MBA claims the Labor Department later contradicted this decision in 2010 when it issued another opinion, saying the "exemption can also apply if the employee’s primary duty is directly related to the management or general business operations of the employer’s customers."

Based on that premise, the Labor Department in 2010 said, "the typical mortgage loan officers’ primary duty is making sales for the employer (to homeowners), and because homeowners do not have management or general business operations, a typical mortgage loan officer’s primary duty is not related to the management or general business operations of the employer's customers."

The MBA pushed back against the idea that an agency can quickly switch directions, making most loan officers nonexempt employees.

In the initial lawsuit, the MBA asked the court to rule that the Labor Department's opinion violated administrative procedures rules by failing to give proper notice and time to comment. They also tried to get the new interpretation thrown out on the grounds that the change is "arbitrary, capricious and an abuse of discretion."

The court disagreed with the MBA, saying it does not find the decision inconsistent with previous regulators nor does it find the Labor Department's opinion arbitrary or an abuse of power.

Legal analysts with K&L Gates who analyzed the opinion said while the decision is negative for the employers of loan officers, it can still be appealed to higher courts.

kpanchuk@housingwire.com

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