Mortgage Loan Officers Court of Appeals Ruling may allow for Exempt Status

July 15, 2013

On July 2, 2013, the Court of Appeals for the D.C. Circuit vacated the U.S. Department of Labor's 2010 reclassification of mortgage loan officers as eligible for overtime pay, finding that the agency must engage in formal rulemaking to make such a change.

The appeals court ruled in favor of the Mortgage Bankers Association which challenged the DOL's decision to flip its position on mortgage loan officers' overtime status in 2010 through an administrative interpretation. The administrative interpretation withdrew a 2006 opinion letter suggesting most loan officers were covered by the "administrative exemption" to the Fair Labor Standards Act, and the D.C. Circuit agreed with the trade group that this change required notice-and-comment rulemaking.

The D.C. Circuit said that the 2010 administrative interpretation must be vacated because no such rulemaking took place. It is important to note that the court took no position on the substance of the DOL's interpretation of non-exempt status.

The appeals court said that the agency is free to readopt the reclassification if it conducts rulemaking through the required notice and comment procedures.

In the interim, there is no clear indication as to whether other courts will rely on recent court decisions or on the original 2006 opinion letter on the issue. However, there is a valid argument that financial institutions can begin treating their mortgage officers and lenders as exempt, provided they meet the standards for the administrative exemption under the FLSA. The court's ruling in this case should mean that the prior position of the DOL that mortgage loan officers can be exempt from the Fair Labor Standards Act should be controlling.

Keep in mind that the Department of Labor could ask the United States Supreme Court to rule on this issue or they could reintroduce the 2010 interpretation after facilitating the formal rulemaking process.

If you should have question about this ruling and the exemption status of mortgage loan officers or any position within you institution, please contact SESCO.