In Lutz v. Huntington Bancshares, Inc., the Sixth Circuit affirmed the dismissal of a putative class action finding that underwriters were properly classified as exempt employees because they fall on the “administrative” side of the administrative-production dichotomy. The Court reasoned that any loans underwritten were already “sold” to the customer by the time they touched them. The underwriters merely determined whether the risks presented by the sold loans were of the type the bank was willing to undertake, and thus “ancillary to the Bank’s principal production activity of selling loans.”
This decision runs contra to the Second Circuit’s decision in Davis v. J.P. Morgan Chase & Co. wherein the court classified underwriters as non-exempt employees engaged in production activities. Key to the Lutz analysis was that the underwriter does not generate business for the bank. The customer has already consulted with a loan originator—effectively the sales person—and picked the loan product of her choice. The underwriter therefore was tasked to advise the bank on whether it should accept the credit risk posed by the customer. In doing so, the underwriters merely collected and analyzed customer financial information. In contrast, the Davis underwriters were lumped with the sales team in the “production” department per the bank’s own policies and procedures. Indeed, the Davis underwriters were evaluated by their productivity in the number of decisions made rather than the ultimate accuracy of their advice, i.e. whether the approved loans were repaid.
The amount of discretion afforded the underwriters was also determinative to their exempt status. The Lutz court focused on the extensive discretion exercised by the underwriters despite being governed by various manuals and procedures. The Court found that the underwriters in Lutz were expected to exercise judgment and permitted to override the recommendations per the manuals. In contrast, the Davis court saw no discretion exercised by the underwriters. The underwriters were provided a “detailed Credit Guide” articulating the credit policies of the bank and trained to apply those policies as is.
Financial institutions outside the Sixth Circuit should carefully analyze the duties and discretion assigned to underwriters if they intend to escape the narrower interpretation of the administrative exception imposed by the Second Circuit. The less inter-lineated with the loan sales process and the more discretion exercised by the underwriters, the more likely the underwriters will be classified as exempt employees. Until the Supreme Court has an opportunity to resolve this Circuit-split, whether loan underwriters are exempt under the FLSA will likely depend on where those underwriters are employed.