IBA Compliance Connection

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A recent U.S. Supreme Court decision confirms the Department of Labor’s determination that mortgage loan originators (MLOs) are nonexempt and entitled to overtime pay. Does that rule also apply to commercial loan officers? The DOL’s Administrative Interpretation No. 2010-1 seems to indicate in an example on page seven that commercial lenders are exempt employees.

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It depends.  A commercial loan officer is not automatically exempt, but he or she may be exempt based on the specific facts of the arrangement.

The DOL Interpretation does not distinguish between consumer loan officers and commercial loan officers. Instead, it bases its conclusion on the “typical job duties” of a mortgage loan officer (e.g., contacting potential customers, collecting customer information, compiling documents, etc.). The DOL Interpretation states that employees who perform these “typical” duties — regardless of their job titles — should be treated as nonexempt, meaning that they are entitled to overtime pay and subject to the minimum wage requirements in the Fair Labor Standards Act of 1938 (FLSA).

It is conceivable and most likely true in some cases that a bank’s commercial loan officers have additional job duties that would qualify them as exempt employees. This determination would require a careful examination of the factors listed in the DOL Interpretation and the cases that it cites, including the section on page 7 that you point out. There it provides an example of a commercial lender qualifying as exempt when providing advice to a commercial customer about a purchase of land. However, the example is qualified with a companion footnote, which states:  “Of course the salary test and the test that the primary duty requires the exercise of discretion and independent judgment with respect to matters of significance must also be met.”

A clear example of “discretion and independent judgment with respect to matters of significance” would be if the commercial MLO had significant underwriting authority. We are aware of at least one federal court case that denied a class action lawsuit filed by commercial loan officers claiming that they were nonexempt, primarily because their job descriptions included “underwriter credit authority limits up to $2MM.”
 
Because this classification is so fact-specific for commercial MLOs, and because getting it wrong in the DOL’s view could result in large penalties and civil money damages, we recommend consulting with employment counsel when determining whether certain commercial MLOs are exempt employees.

For resources related to our guidance, please see below: