How a bank compensates mortgage loan officers can present legal risk for the bank.  Banks need to make sure their compensation practices comply with the federal Fair Labor Standards Act and related state laws, as well as Regulation Z.

Threshold Question: Are Loan Officers Exempt or Non-Exempt?

The exempt / non-exempt status of mortgage loan officers has been heavily-litigated in recent years and has been the subject of several Department of Labor opinion letters.  The inquiry remains very fact-specific and depends on what the loan officers actually do not just on their job descriptions. Relevant questions include:

  • How the mortgage loan officers are compensated (salary basis, hourly basis, commissions, etc.)
  • How much time (hours/week) the loan officers spend in the office (including a home office)
  • What the loan officers do while in the office.
  • What they do while working outside of the office.
  • How involved the loan officers are in generating sales. (e.g., meeting with prospective borrowers at their homes or other locations, meeting with referral sources such as real estate agents, developers, etc.)
  • How much time (hours/week) the loan officers spend generating sales.
  • Others duties and responsibilities of the loan officers.
  • How much time (hours/week) loan officers spend on those other duties and responsibilities (e.g., completing loan applications, gathering credit information and other documentation for the loan application process, etc.)
  • How much judgment and discretion the mortgage loan officers exercise.
  • How much flexibility the mortgage loan officers have in setting work hours and schedules.

Is the Mortgage Loan Officer Compensation Compliant with the Minimum Wage and Maximum Hours Requirements of the Fair Labor Standards Act?

If the mortgage loan officers are non-exempt, the bank must make sure the compensation is compliant with the minimum wage and maximum hours requirements of the Fair Labor Standards Act.  Relevant questions include:

  • How the mortgage loan officers are compensated (salary basis, hourly basis, commissions, etc.)
  • How much the mortgage loan officers earn each week.
  • How many hours the mortgage loan officers work each week.
  • If overtime compensation is paid, how overtime compensation is calculated.  (e.g., Are commissions factored in when calculating the employee’s regular rate of pay?  Bonuses?)

Is the Compensation Compliant with Regulation Z?

If commissions and bonuses are part of the mortgage loan officer’s compensation, it is important to consider whether the compensation plan violates Regulation Z.  Relevant questions include:

  • What are the terms of the mortgage loan officer compensation plan?
  • Are mortgage loan officers compensated differently for different types of loans?
  • Are mortgage loan officers compensated differently based on criteria such as interest rate or other terms or conditions of a loan?