Are You Paying Your Loan Originators Properly?
by. Henry Meier
Are your loan originators work-a-day Joe’s whose lack of discretion makes them more analogous to assembly line workers who simply put together part of a mortgage or does your typical originator exercise enough discretion that they can be compensated based on commissions? That question has been bouncing around the courts now for more than a decade. Its answer has crucial implications for anyone who employs mortgage loan originators and classifies them as exempt employees under the Fair Labor Standards Act (FLSA). It also has implications for anyone whose responsible for trying to comply with agency interpretations. That’s all of you.
As I have pointed out in previous blogs, the Department of Labor has repeatedly changed its mind about this crucial question. The FLSA generally requires employers to pay minimum wage and overtime to employees who work longer than 40 hours a week. However, there are several exemptions to this requirement, for example, for sales people and administrative employees. In 2006, the DOL concluded in an opinion letter that your typical mortgage loan originator qualified for the administrative exemption. However, four years later with a new administration in place, the DOL reversed itself, declaring that mortgage loan originators do not qualify for the exemption. So, this means that if you are continuing to pay your mortgage loan originators as if wage and hour requirements don’t apply to them (for example, if you are paying them solely based on commission) then you are violating the law.
However, this may no longer be the case. A recent decision by the Court of Appeals for the D.C. Circuit invalidated the DOL’s 2010 interpretation. The Court did not address the merits of the issue, but agreed with the Mortgage Bankers of America, who argued that the DOL violated the Administrative Procedures Act (APA) when it issued the 2010 interpretation. It ruled that when an agency has given its regulation a definitive interpretation, and later significantly revises that interpretation, the agency has, in effect, amended its rule, which it cannot do without a notice and comment period.
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