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Mortgage brokers are being sued for not paying their loan officers minimum wage and overtime. Last week I was approached by two law firms asking me to initiate lawsuits against my previous employers. However, the lawyers were not just looking for FLSA violations. One attorney was particularly interested in junk fees we charged borrowers for processing their loans. He mentioned that he has successfully litigated lawsuits against mortgage companies for charging illegal fees and he wanted me to describe the fees we used to charge and the actual services we provided in return for those fees. They are out to get us and they mean business.
Net Branch operators are particularly vulnerable because of their business model that is more like a franchise as opposed to an employment opportunity. But the majority continue to ignore FLSA.
Below is an article published by Thompson Publishing that covers FLSA and how it relates to the mortgage industry.
The mortgage brokerage industry has long relied on what employment attorney David Fortney calls an “eat-what-you-kill” system of commission payments to employees who sell customers loan products for buying and refinancing houses.
But now, as mortgage brokerages continue to deal with a stream of costly litigation alleging failures to compensate commission-earning employees properly under the Fair Labor Standards Act (FLSA), a national industry trade group is pressing for clarification from the U.S. Department of Labor (DOL) on how to apply FLSA exemptions to employees in the industry.
“Our sense is that [the number of FLSA cases against mortgage brokerages] is escalating. The truth is we don’t have a way of tracking” them, said Fortney, who is now working with the National Association of Mortgage Brokers to offer guidance on FLSA exemption issues (see story, p. 14). “But the clear trend is that there are a lot more of these cases. There has been a significant uptick.”
While DOL’s revisions to the white-collar exemption regulations last year may have updated and clarified salary and duties tests for certain types of exemptions from the act’s overtime pay requirements, leading members of the mortgage brokerage industry say employers need more information from DOL on how the FLSA applies to employees of companies specializing in home-financing products.
DOL continues to enforce its existing rules – filing two FLSA cases in Ohio against mortgage companies in June – while offering guidance through the 27,000-member National Association of Mortgage Brokers (NAMB), the mortgage brokerage industry’s largest trade association. At the group’s June convention in Minneapolis, for example, DOL Deputy Wage and Hour Administrator Alfred B. Robinson Jr., presented a seminar on FLSA compliance for mortgage company representatives.
At the same June conference, Robert Armbruster, outgoing president of the association, expressed an interest in altering the work arrangement for mortgage brokers to grant independent contractor status for loan officers. The arrangement would be similar to that currently established for many real estate agents. This would largely resolve the issue because independent contractors are not employees, and thus are not covered by the FLSA.
Employees covered by the independent contractor FLSA exemption, such as realtors, are not considered “employees” under the FLSA’s definitions and employers are therefore not required to pay such employees the federally mandated minimum wage or time and a half overtime.
Short of that, said Roy Deloach, vice president of government and regulatory affairs for NAMB, the group hopes to get further clarification from DOL regarding the exempt status of mortgage brokers and loan officers, positions cited in lawsuits for back pay brought by employees and DOL (see box, below). Through meetings and correspondence with DOL officials, members of NAMB have discussed the issue, hoping the department will address commonly prosecuted violations in the commission-driven mortgage industry through opinion letters or other less formal means.
“We’re trying to get clarification so we can lead our people,” Deloach said in an interview. “We’ve basically provided the labor department with what goes on in our shops so that we can try and get clarification.”
DOL Lawsuits in Ohio
DOL in June filed lawsuits against two mortgage companies in Ohio, seeking a total of more than $500,000 in back pay for employees under the FLSA. DOL, in complaints filed in separate federal courts in the state, alleges that each employer violated the overtime, minimum wage and record-keeping requirements of the act. Both cases involve employees, from telemarketers to loan officers, that were paid on a commission-only basis.
DOL in both cases contends that employees were nonexempt and should have been paid the minimum wage and time and one-half overtime for hours worked over 40 in a workweek.
In Chao v. American Elite Financial, DOL argues a Westerville, Ohio-based firm failed to pay minimum and overtime wages to 125 employees working in Westerville and Columbus, Ohio. The lawsuit follows an investigation by DOL’s Wage and Hour Division that found that since April 2002, the mortgage loan company employed loan officers and assistant managers without guaranteeing employees a minimum wage or overtime for hours over 40 in a workweek. According to the complaint, filed in the U.S. District Court for Southern Ohio, DOL also argues the company failed to keep records as required by the FLSA.
In a statement announcing the lawsuit, George Victory, district director of the Wage and Hour Division in Columbus, said the FLSA “requires payment of minimum wage and overtime pay to employees the company classified as loan officers and assistant managers.” A DOL spokesman declined to comment on the exact duties of the loan officers involved while the case remains open.
In the second case filed the same month – this one in the U.S. District Court for Northern – DOL accuses a Middleburg Heights-based mortgage company with minimum wage, overtime and record keeping violations. DOL argues that Mortgage Edge owed 85 employees, including telemarketers and loan officers, a total of $258,226 in back pay. A Wage and Hour investigation of the employer found it paid those workers strictly on a commission basis and failed to pay loan officers any amount if they did not close loan deals within a pay period. The department, without enumerating specific job duties, found that the workers in question did not qualify for exemption from the FLSA under 20 C.F.R. Part 541.
Aware of developments on the national level and lawsuits for back wages against mortgage brokerages, the Ohio State Association of Mortgage Brokers is now focusing on helping its member companies comply with FLSA regulations, said Michael Farrell, president of the organization. Farrell said his group plans to present a white paper to educate mortgage brokerage owners on how to classify employees.
“There is a huge lack of knowledge that there is a difference between commission-earning and salaried employees,” Farrell said. “And I think it’s our responsibility to notify our membership.”
In FY 2004, DOL brought 264 investigations against employers in the lending business, including mortgage brokerages. DOL found violations in 236 of the cases and collected just over $3.1 million in back wages for some 2,241 workers in the industry, according to enforcement statistics provided by the department.
Recent Lawsuits Involving Mortgage Brokerage Firms • Mortgage Edge Inc. — Middleburg Heights, Ohio DOL June 6 announced a lawsuit against the firm for FLSA violations involving 85 employees and $258,227 in back pay. The complaint alleges that from 2002 to 2004, the company failed to meet minimum wage requirements and pay overtime compensation to its telemarketers. DOL also contends that the firm incorrectly paid commission loan officers and violated FLSA recordkeeping rules. • American Elite Financial Inc. — Westerville, Ohio In June, DOL announced a lawsuit against another Ohio financial group — American Elite Financial Inc. A DOL investigation of the organization found FLSA violations dating back to April 2002. The workers are owed $204,949 in back wages, DOL says, and the company is currently seeking to settle the claims with the department. • Tri-State Mortgage Inc. — Evansville, Ind. In March, Tri-State Mortgage Inc., agreed to pay $67,062 in back wages to 60 employees. A DOL investigation found that Tri-State’s loan originators were paid on commission, yet often did not earn the federal minimum wage. The investigation also concluded that one employee was not paid overtime wages one week, and that the company failed to keep accurate employee records of hours worked. • Global Executive Mortgage Inc. — Venice, Fla. Three Florida loan officers are seeking to bring a collective-action lawsuit against their employer in the U.S. District Court for Middle Florida for failure to meet the FLSA’s requirements. Mike King, Gary Iuliana and Cathy Smilovits allege that they often spent over 60 hours a week generating loan leads for their firm without receiving any type of overtime compensation. The employees were paid solely on commission, so minimum wage standards also were violated, they say. The employees further allege that a company official intentionally rejected advice from FLSA experts who warned him that he was not properly compensating his employees.
