Court dismisses appeal of state's loan officer licensing decision

A Connecticut Superior Court has dismissed a closely watched appeal of a banking department action against a mortgage company accused of loan-officer licensing violations.

Judge John Cordani ruled that the plaintiff,1st Alliance Lending, failed to establish claims that the department violated constitutional or statutory provisions, exceeded its authority, or engaged in unlawful procedures. Cordani also dismissed claims that the state regulatory agency made errors or that its actions were arbitrary or capricious.

State banking officials had alleged that employees known as home loan consultants should have been licensed. These employees took information from borrowers to prequalify them for financing before selecting a home, according to the lender.

1st Alliance's central claim was that Connecticut banking regulators have never clearly defined the point in the origination process at which it becomes mandatory to involve a loan officer, and it saw its actions as compliant.

Cordani said in his decision, "even if we accept the plaintiff's statutory interpretation … the record contains substantial evidence that the violations occurred because the HLCs repeatedly violated the plaintiff's instructions.

"As is readily perceived from the record … when the real world is taken into account, the plaintiff's system presents a high risk of noncompliance," Cordani added, noting that unlicensed home loan consultants were more likely to be motivated by loan-closing incentives that would incentivize them to overstep their bounds than to follow instructions limiting their roles.

1st Alliance referred questions to a legal representative who had not returned a call for comment at deadline.

The lender, which has claimed in court documents that costs associated with banking department actions led to its liquidation and closure in 2019, originally went through an administrative hearing process that continued through February 2020. The dismissed lawsuit was an attempt to appeal the banking department's final decision against the company in April 2021.

Connecticut Banking Commissioner Jorge Perez said in a press release issued about the dismissal of the appeal, "I am pleased with the court's decision since this has always been about protecting consumers. We have remained confident in our positions, which the courts have now affirmed."

A Consumer Financial Protection Bureau case against the lender centering on similar issues is still pending.