Take A Second: CU Legal Insights

Large CFPB Enforcement Actions Against Credit Unions

This week, we are taking a second to dig into some of the recent enforcement actions brought by the Consumer Financial Protection Bureau (CFPB) against credit unions and what led to the CFPB taking action for violations of the Consumer Financial Protection Act. Please keep in mind that we have not reviewed any documents or defenses of the credit unions relating to either of the enforcement actions outlined below. The credit unions may dispute the allegations or finding and we are simply summarizing what has been made public below.  

Let’s jump right in! 

In Case You Missed It  

In a little over a week’s time, the CFPB has issued enforcement actions featuring large monetary penalties against two credit unions under their purview. On the receiving end of these penalties were VyStar Credit Union, based in Florida, and Navy Federal Credit Union, based in Virginia. As a quick reminder, the CFPB have authority to take action against credit unions that have assets of $10 billion or higher that violate the Consumer Financial Protection Act.  

Now, more on the “what” that led the CFPB to take action.  

VyStar Ordered to Pay $1.5 Million Civil Penalty 

According to the CFPB, when VyStar rolled out their new online banking platform back in May of 2022, they left their members in the lurch for an extended period of time, causing them financial harm. The new online banking platform’s functionality - or lack thereof according to the CFPB- made it difficult for members to do basic banking actions, which resulted in members being charged fees for a variety of reasons. 

The National Credit Union Administration (NCUA) also weighed in on the situation, agreeing with the CFPB’s order, stating that there was a lack of due diligence on the part of VyStar’s leadership team. Because of the mismanagement, as determined by the regulators, of the new online banking platform rollout, members were financially harmed. NCUA Chairman Todd Harper further provided that this “failure” not only caused harm to the members but also led to “safety and soundness problems like strategic, reputational, legal and compliance risks.” 

In the action brought by the CFPB against VyStar, the CFPB stated that the credit union ignored red flags and proceeded with the rollout despite knowing there were substantial issues. This caused their members to lose access to their accounts and funds, which led to fees and other financial harm to occur. The CFPB pointed to VyStar’s hasty rollout, including bypassing appropriate testing, stating that VyStar ignored issues and warnings from their development team that the platform was not yet ready.  

As part of the Enforcement Action, the CFPB is requiring that Vystar: 

1. Refund fees to affected consumers. This includes any fees members had to pay to third parties as a result of not having access to online banking, in addition to any fees they charged their members that were incurred because of the improper rollout.  
2. Clean up process for updating its system. Ensuring that there are contingency plans so that a situation like this doesn’t happen in the future.  
3. Pay a $1.5 million fine. This fine is to be paid to the CFPB’s victim relief fund.  

Navy Federal Ordered to Pay Largest Civil Penalty to Date: $95 million. 

Navy Federal was also hit last week with the largest civil penalty to date issued by the CFPB. The CFPB is requiring that Navy Federal refund $80 million to consumers and pay $15 million into the CFPB’s victim relief fund as a result of their violations of the Consumer Financial Protection Act.  

According to the order filed by the CFPB, Navy Federal was charging illegal overdraft fees from 2017 until 2022. The claim states that, during that period, Navy Federal was charging members surprise overdraft fees on certain ATM withdrawals and overdraft transactions despite their accounts showing that they had sufficient funds to cover the transaction. The CFPB found that members were charged an overdraft fee for transactions where there was a sufficient balance in the account at the time of the transaction, but where the account had a negative balance once the purchase posted to the account, which was sometimes days later.  

The CFPB also discovered that when members received funds through peer-to-peer payment systems like CashApp, Zelle, PayPal and others, their Navy Federal accounts showed that the money was available immediately. However, the CFPB claimed that Navy Federal failed to inform their members that any payments received after 10:00 p.m. EST (and later, after 8:00 p.m. EST) would not actually be posted and available to spend until the next business day. Members who tried to use funds that appeared to be readily available were charged overdraft fees.  

As part of the Enforcement Action the CFPB is requiring Navy Federal to:  

1. Refund Overdraft Fees. The improper overdraft fees charged by Navy Federal must be returned to affected members. This amount totals over $80 million in consumer redress.  
2. Banned from charging certain overdraft fees. As a result of these violations of the Consumer Financial Protection Act, Navy Federal no longer is allowed to charge overdraft fees that are a result of insufficient funds at the time of processing or overdraft fees that result from delayed posting of funds received from peer-to-peer platforms.  
3. Pay a $15 million fine. This fine is to be paid to the CFPB’s victim relief fund.  

Key Takeaways? 

Regardless of the size of your credit union, it is imperative to keep your finger on the pulse of current issued orders and filed lawsuits. By doing so, it allows you to evaluate your own internal practices against those that have been deemed insufficient and provides an opportunity to make the necessary changes to address deficiencies. It also increases awareness of the things that could trickle down. 

As we all know, regulators and lawmakers at all levels continue to attack fees of all kinds. The action taken against Navy Federal just brightens the spotlight on fees and fee-charging practices. Use this as a reminder to take a look at your own practices, policies and procedures.  

It is also more important than ever to ensure there are proper safeguards in place when implementing new technologies, especially something as expansive as an online banking platform. Slow and steady wins the race.  

To sum it up, I know that lately it feels like credit unions are constantly under a microscope and, much like Roz from Monsters Inc., the regulators are “always watching” - and they are - let these orders serve as a reminder to continually review your policies and procedures and to adjust accordingly to ensure that you and your credit union aren’t next. 

As always, this article is intended for general information only and does not constitute legal advice. If you have any questions about these topics and/or the possible implications, you should contact your attorney for advice. 

Hope to see you next time, when we take a second to discuss fraud trends!

Employment Law Changes on the Horizon in Early 2025

This week, we are taking a second to consider the impending deadlines for a number of employment law changes to salary thresholds for exempt employees under the Fair Labor Standards Act (FLSA), changes to paid sick time under the new Earned Sick Time Act and changes to Michigan’s minimum wage requirements. I’ve covered these topics previously, so be sure to check out previous Take a Second blog posts for the detailed rundowns.  As we continue to barrel towards the end of the year and head into 2025, it’s pertinent to provide some reminders and additional information. So, let’s jump right in! 

New Salary Threshold for Exempt Employees (FLSA) 

In April of this year, the Department of Labor (DOL) announced changes to the salary threshold for FLSA exempt employees. In their announcement, the DOL required employers to adjust the minimum salary for their FLSA-exempt employees on two dates: the first being July 1, 2024, and the second being Jan. 1, 2025. Employees whose salaries were under the required salary thresholds to remaining FLSA-exempt either need to be adjusted to the new required salary amount or employers would need to reclassify those employees from exempt to non-exempt.  

In my previous Take a Second blog on this topic, I highlighted the importance of consulting with an attorney if you are considering reclassifying any of your employees. I would once again encourage you to do the same if you are considering this ahead of the next increase deadline (Jan. 1, 2025).  

As a reminder, the salary threshold for FLSA exempt employees as of July 1, 2024, was set at $844 per week, which is equivalent to an annual salary of $43,888. On Jan. 1, 2025, this threshold amount will once again increase, this time to $1,128 per week, which is equivalent to an annual salary of $58,656. It is crucial to make a plan to increase your current FLSA exempt employees to at least that amount prior to the Jan. 1, 2025, deadline. Again, if you are thinking about reclassification of an employee(s), I would reach out to your counsel so they can advise you on any potential considerations ahead of making that decision.  

New Michigan Earned Sick Time Act Policy 

In July of this year, the Michigan Supreme Court ruled that prior legislative action, which enacted the Paid Medical Leave Act of 2018 was unconstitutional. This caused the Court to reinstate the prior language of the Paid Sick Leave Act, a voter-initiated petition, previously adopted by the Michigan Legislature and then subsequently amended to create the current law governing paid sick/medical leave (Paid Medical Leave Act). 

With this ruling comes changes that will need to be made regarding how employers provide their employees with paid sick time in accordance with the new law, effective Feb. 21, 2025. MCUL hosted a town hall with Mike Krempa from Holzman Law and Wendy Block from the Michigan Chamber to discuss the issue in September. Following that discussion, it was clear that credit unions are looking for additional guidance on this topic, specifically a model policy.  

So, that is exactly what I created in consultation with Mike. This policy is available on the Michigan League InfoSight page for credit unions to utilize. Again, any specific questions regarding modifications or deviations from the policy will need to be discussed with counsel, but we believe this provides a framework for implementing the new requirements under the law. 

New Michigan Minimum Wage Policy  

Another impending deadline is the required changes again stemming from July’s Michigan Supreme Court decision changing the minimum wage requirement in the state. The minimum wage will increase to $10.56 on Jan. 1, 2025, and then $12.48 on Feb. 21, 2025. These numbers were announced earlier this month by the Michigan Department of Labor and Economic Opportunity. 

If any of your team is making less than the amounts listed above, you will need to take steps to raise their pay rate to reflect the new required amounts by the required dates. Another important note is that these amounts will continue to be adjusted annually by the Department of Treasury in accordance with the Michigan Supreme Court ruling. So, to ensure compliance, this is something that your team will need to be aware of and look for the new numbers annually. 

Legislative Action Coming?  

If you have been following the updates coming from our amazing advocacy team, you might have read that there is a chance of legislative action on several topics, including paid sick time and minimum wage, following the upcoming election. That is true but not something I would rely on. Depending on the outcome of the election, we certainly could see legislative action but what that looks like, and the changes that are able to be agreed to by the legislators, remains to be seen. If I had a crystal ball, I would predict that the legislature will work on addressing and clarifying pieces of both soon to be effective laws, but the timeline for those changes being enacted is anyone’s guess. 

To sum it up, there is a lot to do prior to the beginning of the year to ensure you can be compliant with these laws. There is no guarantee that legislative action will take place as it relates to changes to the earned sick time act or minimum wage prior to the implementation date, so we need to prepare as if this will be the law going forward. The good news is that there is still time to make sure you are compliant. So, if you haven’t already, please take some time to discuss the change that will need to be made prior to the Jan. 1 and Feb. 21, 2025, deadlines.  

As always, this article is intended for general information only and does not constitute legal advice. If you have any questions about these topics and/or the possible implications, you should contact your attorney for advice.  

Hope to see you next time, when we take a second to discuss another legal topic in the financial services industry! 

DOJ Files New Lawsuit Against Visa

This week, we are taking a second to learn about the latest legal news to touch our industry: the recent civil antitrust suit brought by the U.S. Department of Justice (DOJ) against Visa.  

This is not the first time Visa has been in the hot seat recently. In 2020, the DOJ filed a suit against them to block the acquisition of a company called Plaid. And as recently as March, both Visa and Mastercard agreed to limit their credit card fees to a $30 billion settlement. This time, the DOJ is alleging a violation of the Sherman Act (antitrust law) as it relates Visa’s dealings in the debit transaction space.  

Why Was the Suit Brought? 

The DOJ claims in their suit that Visa is monopolizing the industry and engaging in other unlawful conduct within the debit network markets in direct violation of Sections 1 and 2 of the Sherman Act. The 71-page complaint filed in the U.S. District Court for the Southern District of New York alleges a myriad of claims including that Visa has illegally maintained a monopoly and actively tried to quash others attempts to innovate offerings in the debit market.  

Furthermore, the complaint states that Visa penalizes credit unions and other financial institutions who do not use Visa’s payment processing technology when processing debit transactions. The DOJ’s stated in their press release that they believe the actions taken by Visa have cost financial institutions, merchants and consumers alike billions of dollars.  

What is the Sherman Act? 

The Sherman Act was created in the 1980s with the goal of promoting fair competition and preventing monopolies in the United States. The penalties for violating the Sherman Act can be severe and are enforceable against both businesses and individuals based on their conduct.   

What is the Likely Outcome? 

The court will ultimately have to decide whether or not they believe that Visa has engaged in the alleged behaviors. If they decide that Visa has engaged in actions that violate the Sherman Act, there will likely be recourse in the form of injunctive and/or compensatory (monetary) damages. It is important to note that this decision by the U.S. District Court could be appealed by either party to the U.S. Court of Appeals which means that a final outcome is not likely to be known for quite some time.  

In the event the final decision finds for the DOJ and against Visa, there is a potential that this could lead to lessening of fees imposed by Visa related to debit transactions. According to the DOJ, currently $7 billion in processing fees are charged by Visa annually.  

To sum it up, there is still much to be uncovered as this suit progresses through the legal process. The outcome of which could lead to some relief for financial institutions, consumers and merchants. How this will ultimately impact the debit market remains to be seen.  

As always, this article is intended for general information only and does not constitute legal advice. If you have any questions about this topic and/or the possible implications, you should contact your attorney for advice. 

Hope to see you next time when we take a second to discuss another legal topic in the financial services industry!  

Michigan Supreme Court Rules “Adopt and Amend” Unconstitutional

This week, we are taking a second (or two) to learn about the recent Michigan Supreme Court decision dealing with the Michigan legislature’s adopted ballot proposal language, which was subsequently amended in the same legislative session. The ballot proposals that were adopted and subsequently amended were dealing with paid sick leave and minimum wage in the state of Michigan.

The Supreme Court ruled on July 31 that these actions by the legislature were unconstitutional and therefore the original language that was adopted by the legislature prior to the amendment is what will be reinstated. Here is what you need to know about these reinstated requirements and how this ruling affects you as an employer.

What does all this mean?

The Michigan Supreme Court has reinstated the originally enacted versions of PA 337 and 338 of 2018 and the requirements for employers that were included therein. This means that credit unions, as employers, will have to adhere to the new minimum wage and paid-sick-leave standards. The Court also goes to great lengths to express that employers are not liable for relying on the legislative actions and what was required under the amended language.

What did PA 337 and 338 of 2018 require?

For our purposes, we will not discuss the changes for tipped employees that are laid out in the Court’s opinion as they are not applicable here. The original enacted text of PA 337 (the “Improved Workforce Opportunity Wage Act”) would have phased in a new hourly minimum wage rate for the state of Michigan, starting at $10.00 per hour in 2019 and incrementally increasing to $12.00 in 2022. After this, the state treasurer was required to adjust the minimum hourly wage yearly, based on inflation.

PA 338 (the “Earned Sick Time Act”) expanded the eligibility, accrual, and use of paid sick leave for employees based on employer size.

Now what?

Minimum wage. The Court specifically stated that the minimum wage will incrementally increase beginning in 2025. The state treasurer is responsible for determining what the inflation-adjusted minimum hourly wage rate will be. The new phase-in period for these increases will be from 2025 to 2028 (previously 2019 to 2022). In 2029, the state treasurer will continue to adjust the minimum hourly wage yearly based on inflation as dictated in the original text of the legislation. The state treasurer is required to post the new minimum wage by Nov. 1 of the year it is calculated. So, as of Feb. 21, 2025, the minimum hourly wage will be $10.00 plus the state treasurer’s inflation adjustment, which will use July 31, 2024 as the endpoint for that inflation calculation (date of the Court’s opinion).

*Inflation adjustment is to be calculated by the state treasurer using July 31, 2024 as the end point for the calculation.

Paid sick leave. On the highest level, the “Earned Sick Time Act” requires employers with ten or more employees to allow employees to use up to 72 hours of paid sick leave on an annual basis, starting on Feb. 21, 2025. Employers with less than ten employees are required to allow employees to accrue up to 40 hours of paid sick leave annually and can provide for up to 32 hours of additional unpaid time to be accrued. Also, the law will require that employees (including those working part-time) must accrue one hour of sick leave for every 30 hours worked.

When does this take effect?

The new requirements under the law will go into effect 205 days after July 31, 2024 (the date the court issued their opinion). There will be a revised schedule that links the gradual phase-in of the minimum-wage increases to the same annual schedules as originally proposed, but set into the future, and accounting for inflation. That means that the Wage Act and the Earned Sick Time Act will go into effect on Feb. 21, 2025.

To sum it up, employers are going to need to make some significant changes as a result of this decision by the Supreme Court. Review your current paid sick time policies and make any necessary changes to come into compliance with the law by Feb. 21, 2025. Once the state treasurer has determined what the minimum wage will be (on or before Nov. 1, 2024), make any necessary changes to ensure your hourly employees are at or exceeding the required minimum amount.

There is a silver lining here, though. Because the legislature adopted the original initiatives instead of letting them go through to the ballot, future legislatures are not bound to Michigan’s ¾ supermajority vote requirement to amend “initiated laws.” As implementation proceeds, the “normal” legislative process should apply to any future attempts to address issues in the language of these statutes.

As always, this article is intended for general information only and does not constitute legal advice. If you have any questions about this topic and/or the possible implications, you should contact your attorney for advice.

Hope to see you next time when we take a second to discuss another legal topic in the financial services industry!

Litigation Trends Across the Country

This week, we are taking a second to learn more about some trends in litigation across the country. NASCUS recently held a great webinar on this topic, which went into even greater detail but below are some of what I see as key takeaways relating to this topic.

Arbitration at the forefront.

The newest tactic that we are seeing in the litigation space is a shift to mass arbitration. That’s not to say that plaintiffs’ lawyers are not still filing class action lawsuits, that is still happening, but with the increased inclusion of arbitration clauses in contracts we are seeing an increase in mass arbitration actions.

What is mass arbitration?

There are two definitions for mass arbitration that I was able to find. The first, from the American Arbitration Association, defines mass arbitration as arbitration, typically 25 individuals or more, coming into arbitration and making individual demands against the same respondent for the same claim. The same law firm or firms will represent the group of claimants to assist in the coordination of the mass arbitration.

The Judicial Arbitration and Mediation Services, Inc. (JAMS), which is the largest private provider of alternative dispute resolution services in the world, puts that individual threshold at 75 or more similar demands for arbitration filed against the same party or related parties by individual claimants represented by either the same law firm or law firms acting in coordination.

The main difference between class action lawsuits and mass arbitration is that when someone files or joins in on a mass arbitration, they must file their demands for arbitration separately. In a class action lawsuit, plaintiffs who are filing or joining the action are lumped together.

Potential bright side?

Mass arbitration is usually less costly and assists in keeping the action(s) out of court. Actions also tend to be resolved in a more timely manner. There has been a move by many companies to include arbitration clauses in their contracts to push actions in this direction.

Technology is playing a bigger role.

Attorneys in this space have been turning to technology platforms to help them find the numbers needed for both mass arbitration actions and class action lawsuits. Technology advancements have really made it easy for those looking to find individuals to add to their actions easier. Sites like Leverage Law (leverage.law) are an example of what these types of websites look like. Another one to check out to see the “trending” class action lawsuits is Top Class Action on Instagram. There are obviously others but again, this just goes to show the lengths that lawyers will go to collect from a credit union.

Class action litigation is still out there.

Class action litigation is not going away, at least not any time soon. In fact, we continue to see class action lawsuits in the financial services industry pertaining to overdraft protection, NSF fees, data privacy, the list goes on and on. In addition to those usual suspects, we are also seeing new theories of litigation emerge from the Electronic Fund Transfers Act (Reg E).

Reg E denial claims are gaining some traction in the class action arena. The basis of these claims stems from the denial letters that financial institutions send to their members after the member has filed a claim that the transaction(s) was unauthorized. The plaintiffs in these suits are demanding that the financial institution provide them with a substantive explanation of why their claim was denied and how the financial institution came to that conclusion. However, we know that the regulation does not require this, the regulation only requires that the financial institution provide the member with written explanation of their findings, which would be the letter that is sent by the financial institution to the member following their investigation.

The other Reg E theory gaining some traction deals with “Burden of Proof.” Plaintiffs in these cases are arguing that the denial letters they receive from the financial institution shift the burden of proof from the institution to the member to prove that the transaction was, in fact, unauthorized. However, this is not the case. The Electronic Fund Transfers Act (EFTA) does mention burden of proof in Section 1693g(b), but this is specific to when there is an action regarding consumer liability brought. At that point the burden of proof is on the financial institution to prove that the transfer was authorized and even if the transaction was unauthorized, the EFTA states that the burden of proof to establish liability is still with the financial institution per the language of the section.

The other theory being tested by class action is one where the member signs up for an account with Venmo, Square, PayPal or another third party and agrees to a “micro-transaction” immediately, followed by a withdrawal for the same amount. This is done to show that the account is active/valid. There would be no issue if the members account is not overdrawn; however, an issue arises if the members account is negative, and a micro-transaction generates an overdraft on the account. The argument from plaintiffs in these situations is that the third party put the money in the account and then removed the same amount. The money was “in” the account and therefore an overdraft shouldn’t be assessed on the transaction.

To sum it up, class action lawsuits are not going away, and plaintiffs’ lawyers will continue to use their creativity and all the tools at their disposal to ensure that their clients get paid. This should serve as a reminder to regularly review your documents and disclosures. Sometimes litigation can be avoided by simply ensuring that you continue to monitor trends and make updates to documents and disclosures on a regular basis.

As always, this article is intended for general information only and does not constitute legal advice. If you have any questions about this topic and/or the possible implications, you should contact your attorney for advice.

Hope to see you next time when we take a second to discuss another legal topic in the financial services industry!

Special Edition: The End of an Era: Supreme Court Strikes Down Chevron

For this special edition of Take a Second: CU Legal Insights with me, MCUL General Counsel Haleigh Krombeen, we are going to breakdown the Supreme Court’s ruling striking down Chevron. Due to the timing of this decision, I am pushing the promised discussion on trends in class action lawsuits to the next edition, so make sure you come back and check it out!   

Please note: This article is intended for general information only and does not constitute legal advice. If you have any questions about how to implement this rule and/or the possible implications, you should contact your attorney for advice.  

The Supreme Court’s recent decision in the Loper Bright Enterprises v. Raimondo case ended a 40-year precedent known as “Chevron deference.” In short, this means that the courts no longer will be deferring to federal agencies’ interpretations of ambiguous statutes that the agencies administer even if their interpretations of the ambiguous statutes were reasonable. The prior decision recognized the expertise of agencies in their specialized fields and aimed to promote consistency and predictability in regulatory enforcement.  

What is “Chevron deference”? 

Chevron deference, prior to the recent ruling, was the latitude provided by federal judges to agencies over how to interpret the statutes federal agencies administer when a dispute arises. To put it simply, Chevron allowed federal agencies to make reasonable interpretations of federal statutes that were ambiguous. If the statutes were not ambiguous then this deference was not extended. With this ruling, this is no longer the case. 

Who does this decision affect?  

Everyone. But more specifically federal agencies who, until now, have enjoyed the ability to interpret ambiguous laws. With the “striking down” of this doctrine that has been around for some 4 decades, there are going to ripple effects felt through all sectors. This opinion is not likely to jeopardize the probability that regulations promulgated by agencies will be held up by the courts. However, it is more likely that regulations will be challenged either directly in an action against the agency under the Administrative Procedures Act (APA) or collaterally in a private lawsuit against a defendant whose defense is that they relied on and complied with an agency regulation. It doesn’t mean that federal agencies will not continue to take part in rulemaking, it just means that if those rulemakings are challenged, the court does not have to defer to the agencies’ expertise but rather the judges themselves can make the determination of what was to be the statutory intent.  

What’s next? 

Likely a lot of legal challenges. It remains to be seen how this will impact the regulatory and legislative landscape moving forward. Will Congress be clearer in their statutory language? Will regulatory agencies carry out less rulemaking? We will have to wait and see. However, the impacts on the legislative and regulatory process are sure to be lasting.  

To sum it up, this ruling marks a significant shift in the balance of power between federal agencies and the judiciary, with far-reaching implications for regulatory practice and governance. We will have to wait and see how this impacts federal agencies going forward.  

Hope to see you next time when we “take a second” to talk about trends in class action lawsuits in the financial services industry. 

This article is intended for general information only and does not constitute legal advice.  

Understanding the Department of Labor’s Final Rule: New Salary Thresholds for Overtime Exempt Employees

For this first edition of Take a Second: CU Legal Insights with me, MCUL General Counsel Haleigh Krombeen, we are going to breakdown the Department of Labor’s (DOL) Restoring and Extending Overtime Protections final rule.

This final rule increases salary thresholds for overtime exempt employees under the Fair Labor Standards Act (FLSA). As a reminder, the first portion of this rule is effective starting next Monday (July 1, 2024). This article is intended for general information only and does not constitute legal advice. If you have any questions about how to implement this rule an/or the possible implications, you should contact your attorney for advice.

What is the DOL’s Final Rule?

To put it simply, the DOL’s final rule increases the minimum salaries thresholds for employees to continue to be exempt from federal overtime requirements under the FLSA. These classifications of employees are exempted from overtime because they are paid on a salary-versus-hourly basis and have job duties that meet the requirements to be classified as an executive, administrative or professional employee under the regulation.

Who is Classified as an Exempt Executive, Administrative or Professional Employee Under FLSA?

The FLSA outlines a set of requirements that must be met for an employee to be considered an exempt executive, administrative or professional (EAP exempt) employee under the regulation. The breakdown of the specific requirements for each of these employee classifications can be found here. Generally speaking, EAP-exempt employees must meet the following criteria:

1. They must be paid a salary that is a predetermined, fixed amount that is not subject to reduction due to quantity or quality of the work they perform;
2. They must be paid at least a specified weekly salary level; and
3. They must primarily perform executive, administrative, or professional duties (as outlined in the link above).

Currently Required vs. What the New Rule Requires

Currently to be an EAP-exempt employee, an executive, professional and/or administrative employee must — in addition to satisfying the applicable “duties” test — receive a guaranteed base salary of at least $684 per week which equates to $35,568 per year.

The new rule increases that guaranteed base salary amount as follows:

1. On July 1, 2024, EAP-exempt employees must make $844 per week or $43,888 per year to continue to be exempt from federal overtime under FLSA.
2. On January 1, 2025, EAP-exempt employees must make $1,128 per week or $58,656 per year to continue to be exempt from federal overtime under FLSA.
3. July 1, 2027, and every three years thereafter, these salary thresholds will be evaluated and potentially changed to reflect current earning data.

It is important to note that the “duties” test has not been altered by the new rule.

What Should You (as an Employer) Do?

1. Take steps to make sure that all your employees that are treated as exempt have the requisite salary in time to meet the July 1, 2024, deadline and then again prior to the Jan. 1, 2025, deadline.
2. Take steps to make sure that all employees that are treated as exempt have the proper duties to qualify for that exemption.
3. And if necessary adjust employees’ salaries or exempt status. This piece can be very complex, so I recommend consulting with an experienced employment law attorney on this if you are moving an employee(s) from exempt to non-exempt.

Resources:

The DOL has put out several helpful resources that can be used to help navigate this new rule. Links to some of these resources are included below.

• DOL Final Rule: Restoring and Extending Overtime Protections Webinar
• DOL Final Rule: Restoring and Extending Overtime Protections FAQ
• DOL Final Rule: Restoring and Extending Overtime Protections General Information

To sum it up, this rule is going to require your credit union to look at your employees’ salaries and classifications to determine if changes need to be made to ensure compliance with this rule prior to the effective date of July 1, 2024. It also should serve as a conversation starter for what additional changes will need to be made ahead of Jan. 1, 2025, when the additional increase takes place. If you have any questions about how to implement this rule and/or the possible implications, you should contact an attorney for advice.

Hope to see you next time when we “take a second” to talk about trends in class action lawsuits in the financial services industry.