1st Alliance seeks to hold Conn. to deadline for LO licensing decision

1st Alliance Lending, which shut down amid a still-unresolved regulatory dispute with Connecticut in 2019, on Tuesday added a new legal complaint to the broader range of litigation it previously filed.

Filed in Connecticut Superior Court, the new complaint aims to compel a near-term decision on allegations first raised in 2018. It seeks the enforcement of a statutory deadline, which states that final decisions are due 90 days “after the close of evidence or the due date for the filing of briefs, whichever is later.”

Connecticut last week signaled that it would extend a Jan. 18 deadline — which had been set in line with the 90-day decision rule — by another three months based on an executive order that allows for such extensions if deemed necessary due to the pandemic. There have been several other delays in the process but this was the first request of a postponement of this particular deadline, which was set based on the Oct. 19 due date for the filing of briefs.

1st Alliance’s action Tuesday challenged the assertion that there was a valid reason for the delay.

“Executive Order 7M limits the extension of ‘Regulatory Administrative Deadlines’ to situations in which such extensions are ‘reasonably necessary to respond to the COVID-19 pandemic or its effects.’ The Commissioner’s Order does not identify any facts or circumstances supporting an extension of 90 days as being necessary ‘to respond to the COVID-19 pandemic or its effects.’ Rather, the Order notes only that the extension was ‘requested by the Hearing Officer,’” 1st Alliance said in its new complaint.

In a statement responding to the complaint, the Connecticut Department of Banking said it “continued to work earnestly on reaching a resolution,” but affirmed that complications related to the COVID-19 outbreak had delayed the work.

“Given the volume of documents to review and the unprecedented challenges created by a global pandemic, the Department has utilized the authority granted under the Governor’s Executive Order 7M, allowing for an extension to reach its decision,” the statement read. “This short extension will ensure that the hearing officer will be able to evaluate the numerous exhibits, documents and testimony in this case allowing for a fair and informed decision on the matter.”

The original, unresolved complaint against 1st Alliance centers on the question of when licensed loan officers have to be involved in the origination of mortgages through the consumer-direct channel. 1st Alliance has characterized the practices as common and compliant, but Connecticut regulators called the company’s actions egregious, alleging that it used support staff to handle licensable activity rather than licensed loan officers.

The dispute between 1st Alliance and its regulator have been of broader interest to the industry because the evolution of digital mortgage lending has changed the role of loan officers in ways original licensing rules may not have foreseen.

To date, there has been no apparent move by other states or regulators to make similar allegations. Last year, 1st Alliance principals established a new company based in Massachusetts called Phoenix Home Lending.

1st Alliance is continuing to pursue a separate legal action in which it alleges that Connecticut’s handling of its licensing status related to its unresolved complaint were improper, and had knock-on effects with other state licenses, which led to the company’s closure.

A Connecticut Superior Court judge upheld Connecticut’s decision to revoke 1st Alliance’s license in that case, but 1st Alliance has appealed the decision. Connecticut’s response in that case is pending.