A Minneapolis law firm has succeeded in wrangling settlements from 50 banks and other mortgage lenders for not paying overtime to their loan officers.
Donald Nichols, the founder of Nichols Kaster, says the settlements have provided compensation for more than 50,000 loan officers nationwide.
Most of the settlements are confidential. Nichols would not provide much information about them, though he said the largest exceeded $10 million.
He noted that many in the mortgage industry continue to believe they don't have to pay overtime to their loan officers, despite the settlements and a recent interpretation by the Labor Department.
"A company that wants to put its head in the sand is not doing itself any favor," Nichols said.
If lenders keep refusing to pay overtime, he said, "I want to know about it, because I guarantee you we will pursue that case."
For the past six years Nichols Kaster has been locked in a legal battle with Quicken Loans Inc., today the nation's eighth-largest originator of home mortgages.
The firm has filed four separate collective actions against Quicken alleging the Livonia, Mich., company is violating the Fair Labor Standards Act by refusing to pay overtime to its loan officers.
A collective action allows employees to join in the lawsuit.
The plaintiff's attorney said that 3,000 of Quicken's loan officers have "opted" to be represented by Nichols Kaster. (The U.S. District Court in Detroit was expected to rule on the case soon.)
The major issue in the Quicken case is whether loan officers are primarily engaged in sales or administrative duties. Based on a 2006 Labor Department interpretation, loan officers can be exempt from overtime if they engage in administrative duties such as providing financial advice.
In its court filings, Quicken argues that its loan officers analyze their clients' financial goals and advise them on the "mortgage options that are best suited to their individual needs." Earlier this year the Labor Department reversed the 2006 interpretation.
The new interpretation states the administrative exemption does not apply in cases were customers are "seeing advice for their personal needs, such as seeking mortgages for their homes."
Quicken Loans said this "statement is simply wrong and legally invalid," in a memorandum filed with the U.S. District Court.
The memorandum argues that the court reject and show no deference to the Labor Department's May 2010 interpretation.
The lender said in a statement that it "follows the law and we have not violated any statute by paying our mortgage bankers a guaranteed salary and a generous compensation plan."
It added: "We believe in rewarding our mortgage bankers fairly for the financial services work they do. In an earlier ruling in this case, the court determined that Quicken Loans justifiably relied on official guidance from the U.S. Department of Labor, which said that mortgage loan officers, similar to the mortgage bankers at Quicken Loans, were lawfully exempt from overtime pay pursuant to the Labor Department's own regulations."
In short, Quicken expects to win the case after a jury trial ends.
Nichols Kaster attorneys contend that loan officers are entitled to overtime under the Fair Labor Standards Act since they are primarily engaged in selling mortgages.
They point out that even the 2006 interpretation, which favored the mortgage industry, includes language saying employees engaged mainly in sales are entitled to overtime.
Quicken's loan officers are "hired, compensated, trained, disciplined, praised and terminated based on sales production," and they follow "Quicken's proprietary 'sales process,' which dictates how mortgage bankers are to make their scripted sales pitch," according the collective action complaint.
The filing says Quicken Loans has "enjoyed a significant financial benefit and competitive advantage by violating the FLSA while its direct competitors comply."
Quicken Loans is not alone in its opposition to the Labor Department's recent interpretation. The American Bankers Association and six other industry trade groups have joined Quicken in urging federal Judge Stephen Murphy to reject the Labor Department's latest interpretation.
