ABA and MBA Joint Letter to DOL re: Mortgage Loan Officers

Mr. Keith Sonderling
Acting Administrator
Wage and Hour Division
U.S. Department of Labor
200 Constitution Avenue, NW
Washington, DC 20210

Dear Acting Administrator Sonderling:

The American Bankers Association (ABA) and Mortgage Bankers Association (MBA) request that the Department of Labor’s Wage and Hour Division (WHD) issue an opinion letter that concludes that mortgage loan officers are exempt administrative employees (Administrative Exemption), under section 13(a)(1) of the Fair Labor Standards Act (FLSA) and the FLSA’s implementing regulations (FLSA Regulations). This could be achieved through re-issuance of the opinion issued on September 8, 20065 (2006 Opinion), which correctly reached that conclusion.

I. Summary of Request

The 2006 Opinion provided reasoning that was — and remains — compelling in its application of the Administrative Exemption to mortgage loan officers. These employees exercise discretion and independent judgment to assess a mortgage borrower’s financial circumstances to determine which mortgage loan product meets the customer’s needs in purchasing a home. As such, mortgage loan officers satisfy the criteria for the Administrative Exemption, as listed below. Moreover, treatment of mortgage loan officers as exempt employees would benefit these officers by providing greater flexibility in officers’ work hours and in responding to customer inquiries outside of traditional work hours.

Despite the persuasive reasoning provided in the 2006 Opinion, on March 24, 2010, the Opinion was rescinded through Administrator’s Interpretation No. 2010-1 (2010 Interpretation). The 2010 Interpretation was based on a flawed understanding of the duties performed by mortgage loan officers and a misapplication of the FLSA Regulations. WHD should rescind the 2010 Interpretation and conclude that mortgage loan officers are exempt administrative employees.

II. Mortgage Loan Officers Satisfy the Requirements of the Administrative Exemption

The Administrative Exemption exempts from the FLSA’s minimum wage and overtime pay provisions “any employee employed in a bona fide executive, administrative, or professional capacity . . . .” Through the WHD’s implementing FLSA Regulation, WHD has interpreted the Administrative Exemption to cover any employee—

1. Compensated on a salary or fee basis at the rate of not less than $455 per week;
2. Whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
3. Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Mortgage loan officers satisfy each of the requirements under the FLSA Regulation to be exempt administrative employees. First, mortgage loan officers are compensated on a salary basis at a rate of at least $455 per week (prong 1). To the extent that a mortgage loan officer is not compensated at a rate of $455 per week, that individual would not qualify for the Administrative Exemption.

Mortgage loan officers also satisfy the “primary duty” aspects of the Administrative Exemption, as expressed in prongs 2 and 3, above. As the 2006 Opinion observes, the FLSA Regulation includes specific examples of occupations that would generally meet this “primary duty” test to qualify for the Administrative Exemption. Significantly, the FLSA Regulation provides, as one example of an occupation that meets the test, “[e]mployees in the financial services industry” (Financial Services Example). The FLSA Regulation explains that financial services employees generally meet the duties requirements for the Administrative Exemption if—

their duties include work such as collecting and analyzing information regarding the customer’s income, assets, investments or debts; determining which financialproducts best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing or promoting the employer’s financial products.

Mortgage loan officers perform these duties. They collect and analyze the customer’s income, assets, investments, debts, credit history, prior bankruptcies, judgments, and liens. Based on this information and characteristics of the property sought by the customer, the mortgage loan officer determines which mortgage loan product best meets the customer’s needs and financial circumstances. This is not a mechanical decision; it requires careful thought and consultation with the customer to review the benefits and disadvantages of different loan products based on the customer’s unique circumstances. In performing this work, mortgage loan officers “exercise discretion and independent judgment with respect to matters of significance,” as required under prong (3) of the “primary duty” test. No two customers have identical financial histories, incomes, assets, or goals, nor do two customers seek identical properties. Mortgage loan officers attempt to determine the appropriate loan for each individual customer. Consequently, mortgage loan officers must exercise discretion and judgment in meeting the customer’s needs in light of their financial circumstances and the available offerings.

A mortgage loan officer’s discretion and judgment are akin to those of client service managers at an insurance company, which WHD has concluded are exempt under the Administrative Exemption. As with a client service manager, a mortgage loan officer performs work that “involves comparing and evaluating possible courses of conduct and acting or making a decisionafter the various possibilities have been considered”; evaluates the mortgage customer’s needs and “compares these needs to the [mortgages] available”; and exercises “authority to execute [mortgage] contracts and legally bind” the business.

Mortgage loan officers also perform “office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers,” further satisfying prong 2. As the Opinion found, mortgage loan officers “service their employer’s financial services business by marketing, servicing, and promoting the employer’s financial products.”

III. The Wage and Hour Division Improperly Rescinded the 2006 Opinion

WHD’s decision in 2010 to rescind the 2006 Opinion was based on a flawed understanding of the application of the FLSA Regulation. Without explanation, WHD devoted only two sentences in its nine-page 2010 Interpretation to application of the Financial Services Example to mortgage loan officers. In these two sentences, WHD failed to apply the attributes listed in that Example to mortgage loan officers that, if satisfied, exempt the employee: that the employee’s “duties include work such as collecting and analyzing information regarding the customer’s income, assets, investments or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing or promoting the employer’s financial products.” Consequently, the Interpretation inappropriately reads out of the FLSA Regulation the preceding list of duties that, if applied to mortgage loan officers, would exempt them.

The 2010 Interpretation also disregarded the Preamble to the FLSA Regulation, which states—

many financial services employees qualify as exempt administrative employees, even if they are involved in some selling to consumers. Servicing existing customers, promoting the employer’s financial products, and advising customers on the appropriate financial product to fit their financial needs are duties directlyrelated to the management or general business operations of their employer or their employer’s customers, and which require the exercise of discretion and independent judgment.

As discussed above, mortgage loan officers satisfy these criteria: they are involved with servicing existing customers, promoting the bank’s mortgage loan products, and advisingcustomers on the appropriate mortgage to fit the customer’s financial needs. The 2010 Interpretation improperly disregarded the plain language of the Financial Services Example and the Preamble to the FLSA Regulation.

IV. Reclassification of Mortgage Loan Officers as Exempt Employees Would Benefit these Officers and their Customers

Mortgage loan officers and their customers would benefit significantly from their reclassification as exempt employees. Employers could provide mortgage loan officers withgreater flexibility to schedule their work time to meet customers’ needs and personal responsibilities, without micromanaging employee times to meet time ceiling strictures. Withexempt status, a mortgage loan officer may address unexpected personal obligations, such as the need to take a sick child to the doctor, by shifting work hours from one week to the next. Without exempt status, the employee may be constrained by the employer to shift these hours because the shift could result in the employee working more than the allotted hours in a week. Moreover, mortgage loan officers are often required to work during hours when their customers are off from work; officers frequently attend community events and otherwise meet with (and respond to) customers after normal work hours. A mortgage loan officer with exempt status is not impaired in performing this work by a concern that the officer may exceed weekly work hour limits.

Conclusion

ABA and MBA request that WHD classify mortgage loan officers as exempt administrative employees by rescinding the 2010 Interpretation and reinstating the 2006 Opinion or issuing a new opinion that reaches this conclusion. Mortgage loan officers satisfy the criteria for the Administrative Exemption, because they exercise discretion and independent judgment in advising customers about mortgage loan products. Classification of mortgage loan officers as exempt employees would also encourage employers to provide these employees with greater flexibility to schedule the officers’ time to meet personal and work responsibilities.

Thank you for your consideration of this request. If you have any questions or would like to discuss, please contact Jonathan Thessin at ABA (202-663-5016; [email protected]).

Sincerely,

Virginia O’Neill
Senior Vice President, Center for Regulatory
Compliance
American Bankers Association

Stephen A. O’Connor
Senior Vice President, Public Policy &
Industry Relations
Mortgage Bankers Association