On December 1 the Supreme Court heard arguments in Perez v. Mortgage Bankers Association (MBA), a case likely to have significant implications for banks and other mortgage lenders, as well as on the larger issue of whether government agencies are able to make substantial changes to regulations without a public comment period.

The case involves competing interpretations from the Department of Labor during the Bush and Obama administrations of the Fair Labor Standards Act regarding minimum wage and overtime pay for loan officers.  President Bush’s administration re-interpreted the act in 2006, while President Obama’s administration restored the original interpretation in 2010.

The case arose when the MBA sued the Obama administration for its interpretation of the Act.  The District Court’s holding in favor of the administration’s position was reversed by the Court of Appeals, which determined that government agencies must follow the notice and comment requirements of the Administrative Procedure Act when making significant changes to rules.  Since the Department of Labor did not do so in 2010, the ruling effectively reinstated the 2006 interpretation that loan officers were exempt from overtime pay.  The appeals court ruling, however, leaves the door open for the Labor Department to re-adopt its 2010 interpretation, provided it first conducts a rulemaking with notice and comment.

The case will have important consequences for all government agencies whenever there is a move to reverse or significantly alter policies established under a predecessor’s administration, absent a formal rulemaking process.

More information, including a transcript and audio from the December 1 argument, is available here.