The Second Chapter: Loan Officers and FLSA


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The Second Chapter: Loan Officers and FLSA

Last month, I wrote about a Wage and Hour Opinion Letter that determined a certain loan officer position in a financial services organization was not an exempt employee under the Fair Labor Standards Act ("FLSA"). Since the publication of the article, I have been asked to explain the Opinion, fax the Opinion, defend the Opinion and "put a match" to the Opinion. Requests, comments and some statements of profanity about the Opinion have come to me from banking folk located from Arizona to Maryland.

So much "hoopla" has been raised about the Opinion that I thought I had better address the issues raised by the Opinion in more detail.

In rendering its determination, the Wage and Hour Division reviewed the position of loan officer employed by a mortgage company. The issue that was presented to the Division was whether the loan officer position was exempt from the minimum wage and overtime provisions of the FLSA. The job duties of the loan officer at issue included: developing new business for the employer; evaluating the borrower's financial situation; issuing "prequalification letters"; determining the best interest rate available to the borrower; selecting loan programs; resolving problems with the central loan processing department and closing the loan.

The loan officers at issue reported to the branch manager of the company, but the branch manager did not supervise the loan officer's selections of loan programs for borrowers, or review the borrowers' loan programs. In other words, in many aspects of the duties relating to the loan processes, the loan officer at issue exercised a certain amount of independent discretion and worked fairly autonomously.

Despite the fact that the particular group of loan officers working in the positions examined in the Opinion exercised a certain amount of independent discretion and judgment, the Wage and Hour Division found that the loan officers did not customarily engage in the overall policy-making functions of the "support-side" of the financial institution's business. The Division found that the loan officers were employed to perform functions that were necessary to the production side of the financial institution's business (i.e., "sales" of loans), rather than the administration side of the company's business. Based upon this reasoning, the Division held that the loan officers at the mortgage company were not bona fide administrative employees under the FLSA, and were therefore subject to the minimum wage and overtime requirements of that Act.

The Wage and Hour Division also suggested that, to qualify as a "bona-fide administrator" and, therefore, be deemed "exempt" under the FLSA, a loan officer would have to regularly engage in activities relating to those executive or administrative functions of the company that "service" the company and help it to operate. Examples of such activities, according to the Division, were: personnel administration; research, planning and management assistance. Additionally, the Division found it relevant to its determination that the loan officers of the company used their skill and expertise to apply specific loan standards to particular borrower circumstances, rather than exercising "discretion and independent judgment."

From the number of heated comments I received about the Division's Opinion, and from my own observations, it appears that many financial institutions currently classify their loan officer positions as exempt under the FLSA. Does the Division's Opinion mean that ALL the loan officers employed across the country in exempt positions need to re-classified? Perhaps, but also, maybe not.

Certainly, financial institutions need to examine the nature and scope of the duties assigned to their loan officers. Certainly, banks and mortgage companies need to assure that their "exempt-level" loan officers are assigned a substantial number of duties that truly relate to business functions that "support" the company, rather than merely "sell" more loans. Certainly, these financial institutions need to involve their loan officers in the policy-making functions relating to loan generation and administration whenever possible.

Most importantly, however, banks and mortgage companies need to carefully design the scope and nature of their loan officer positions in a manner that will support the positions' exempt status under the FLSA. It is critical that these financial institutions also develop and maintain job descriptions and specifications for loan officer positions that support, in detail, the reasons why the positions are classified as exempt.

How may this "designing" and "drafting" be accomplished? The answer to this question will differ with each particular financial organization. The one thing that may be said with certainty, however: no financial institution should merely "decide" that its loan officers are exempt under the FLSA without being ready to support that decision in the event of a Department of Labor audit.

First published on BankersOnline.com 5/21/01.
Copyright, 2001, The Compliance Company. All rights reserved.

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