IBA Compliance Connection

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Within sixty days after selling a mortgage loan on the secondary market, the customer decided to prepay the loan. Our sales contract required us to refund its fee. Can we take back the compensation paid to the loan officer for making the loan?

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The answer depends on the terms of your employment agreement.

The Illinois administrative rules for the Wage Payment and Collection Act permit employers to deduct certain commissions from an employee’s wages. The commission must be provided for in an agreement with the employee, the commission must be for a particular sale, and the sale must have been “voided.” The term “voided” is not defined in the rules or in the law.

It is not clear whether this sale should be treated as “voided,” since the loan transaction successfully consummated and was sold on the secondary market. Illinois courts have looked to employment agreements to determine whether an employee was entitled to a commission, although we are not aware of any cases dealing with commissions for mortgage loans or clawbacks of previously paid commissions. For example, one court held that employees were not entitled to commissions if customers cancelled their orders, because their employment agreements provided that commissions would “accrue” when the customer paid the invoice for the purchased goods.

Depending on the wording of your employment agreement, you may be able to deduct the commission that was paid to the loan officer. However, because the result depends on the wording of your employment agreement, we recommend that you consult with bank counsel before deducting the commission.

For resources related to our guidance, please see:

  • Payment and Collection of Wages or Final Compensation Rules, 56 Ill. Adm. Code 300.510(b) (“When the employer and the employee agree that the employee is to be paid a commission on the basis of a particular sale, and the sale is subsequently voided, the employer may deduct from the employee’s wages or final compensation the amount of the commission previously paid on that particular sale.”)
  • Almy v. Kickert Sch. Bus Line, Inc., 722 F.3d 1069, 1075 (7th Cir. 2013) (The Illinois Wage Payment and Collection Act entitles “workers to the compensation owed under their employment agreement.”)
  • Ashley v. IM Steel, Inc., 406 Ill.App.3d 222, 237 (3rd Dist. 2010) (“Because the purchase orders were not fulfilled, the anticipated commissions simply never accrued according to the terms of the purported employment agreement . . . .”)