Judge upholds Connecticut's revocation of 1st Alliance's license

A Connecticut Superior Court judge has upheld Banking Commissioner Jorge Perez's decision to revoke 1^stAlliance Lending's state license following an appeal by the company last year.

"The court finds that the record contains substantial evidence in support of the commissioner's decision," Judge John Cordani said in an Aug. 27 memorandum.

The lawsuit over the revocation stemmed from a series of events related to the impact of state allegations on 1^stAlliance's bonding. 1^stAlliance had not yet had a hearing on those allegations of improper loan-officer licensing when the events occurred.

1^stAlliance and the Connecticut Department of Banking had received a noticed from the company's surety bond provider, The Hartford, indicating that because of developments related to the allegations, the lender's state bonding would be pulled.

That triggered the DoB to send a compliance letter to 1^stAlliance that the two parties interpreted very differently.

The company saw an offer to surrender its license among the options in the letter, in addition to the possibility of obtaining new bonding. Based on its reading of the letter, the company chose to wind down operations in the state and asked to surrender its license to reflect the close of its business there, which would not have triggered an adverse notice on the nationwide licensing system.

1^stAlliance and Connecticut disagree on whether the law would allow the banking commissioner to have accepted a surrender of the company's license given the circumstances, with the judge upholding the DoB's stance.

"This is a highly regulated industry, and the department expects its licensees to know and understand the laws under which they operate, in this instance, 1st Alliance did not," said DoB spokesman Matt Smith.

John DiIorio, the former CEO of 1^stAlliance, said he was disappointed in the outcome of the appeal because the revocation of the license occurred before the company had a chance to have a hearing on the allegations it was facing.

"Under this ruling, if you find yourself in a contested case, and the bonding company pulls the bond in response, the commissioner has a free pass to revoke your license," he said.

DiIorio called the state's refusal to accept 1^stAlliance's surrender of its license the last straw for the company.

"Revocation was the point of no return for 1A," he said. Prior to its dispute with the Connecticut Department of Banking, 1^stAlliance employed 178 people and operated in 46 states, according to the company.

When asked what the company's next move might be in light of the ruling, DiIorio said, "1^stAlliance is considering all its options."

The DoB's still-pending enforcement action related to loan-officer licensing at 1^stAlliance is based on the account of an unnamed whistleblower who alleged that the company used unlicensed professionals to originate mortgages at its call center in violation of the law. DoB officials described the company's alleged breaches of mortgage licensing rules as egregious.

The firm closed in November 2019, surrendering all of its state licenses due to the Connecticut revocation and its knock-on effect on broader authorizations the company had to do business.

There was an administrative hearing process for the revocation prior to 1^stAlliance's decision to file a lawsuit challenging it.

As far as the status of the allegations related to improper loan-officer licensing, they were amended once and expanded, and hearings have been held, but an outcome is still pending.

A hearing officer is currently reviewing the record related to the loan-officer licensing allegations with the aim of making a recommendation to the commissioner, said Smith.

The loan-officer licensing allegations at 1^stAlliance have raised compliance questions for mortgage companies working in a market where originations are increasingly handled using automation or through call centers.