A 4-year battle of CT’s banking department is collapsing

To understand the depth of the animosity in what may well be the state‘s most entrenched regulatory battle, a four-year saga with no signs of letting up, follow the first day in court in a lender’s appeal. mortgage bankrupted by the state department of banks.

The case is a picture of the absurdity between government and business, more than two years after 1st Alliance Lending LLC, with 178 jobs, disappeared under attack from a ministry seeking, presumably, to protect the public borrower. It doesn’t matter that 1st Alliance hasn’t had a single customer complaint against it in this whole affair.

In a humorless dark comedy, the department hasn’t even shown that a consumer has been harmed, despite regulators rightly arguing that the rules are in place to prevent such harm.

On April 16, three years after a surprise investigation at the 1st Alliance offices in East Hartford, the banking department found the company in violation of several state laws and ordered the revocation of its license and a fine of $750,000 – even though it had already revoked 1ère Alliance’s license in October 2019.

That 2019 action, according to the company’s CEO and founder, forced the company to shut down in all 46 states where it sold loans and resulted in the layoff of its last employees.

The crux of the dispute is a departmental accusation that 1st Alliance routinely had unauthorized people in its East Hartford call center taking mortgage applications in a way that violated federal and state laws. These SAFE Act laws require anyone selling home loans to be a “Qualified Mortgage Originator”. They were part of the 2009 reforms, after widespread mortgage abuse led the country into the worst recession since the Great Depression.

Seems like a pretty simple question and a pretty straightforward problem to solve in 2018, should the 1st Alliance be in violation, as Banking Commissioner Jorge Perez and his hard-working staff seem certain. They may be right, the 1st Alliance may have violated several state laws. But it should never have come to this – a mess unfolding in three separate court cases with all those dozens of people losing their jobs.

The department did indeed offer an easier solution, in the summer of 2018, in the form of a $150,000 fine that would avoid further prosecution but require the 1st Alliance to never refute the allegations. John DiIorio, the founder and CEO, said he would not and could not sign this order without jeopardizing the company.

I wrote about it at the time. Things exploded from there.

Now, the 1st Alliance has unearthed evidence that might cause a reasonable person to at least wonder if Perez or others in the department acted out of anger and revenge. At least Perez made an extremely ill-considered remark last March during a Legislature Banking Committee hearing, unrelated to the 1st Alliance.

Perez, speaking about the Community Reinvestment Act exams that banks must pass showing that they have lent money to disadvantaged neighborhoods, said: “In my opinion, to fail the CRA, it takes a lot . Unless you really piss off your regulator and get revenge on you. It’s a possibility. But even then, they must have a reason.

He was pleading for lawmakers to tighten the rules, which is good. But how about this comment? Was he kidding? Now, the remark by the two-time former chairman of the New Haven Board of Alders has been entered into evidence in the Alliance’s first appeal to the Superior Court.

The company appealed that April 16 decision, and Tuesday was the first day of hearings in Superior Court. The 2019 dismissal is the subject of a separate case, which the banking department won in Superior Court, and is now before the state Supreme Court, which heard arguments in November.

Separately, the US Consumer Financial Protection Bureau sued 1st Alliance in federal district court in Connecticut a year ago based on similar allegations. This case is pending.

During Tuesday’s online hearing before Superior Court Judge John Cordani, we saw no submissions on the underlying charges against 1st Alliance. Oh no, this case is way too entrenched for that. The company’s attorneys — including Ross Garber, a CNN legal commentator who has represented at least four governors under fire in four states — pointed to the Perez comment.March ts.

To tie these remarks to this case, they produced a transcript of a presentation by a former banking department attorney, Stacey Valerio, who told mortgage bankers about lessons learned from the 1st Alliance case. One of them was that it’s not safe to assume, as she said the 1st Alliance did, that it’s not because multiple states examined you and found you are in compliance with unified federal and state laws that all states will find you in compliance with.

“Because it might not get you very far and you might make them very angry,” Valerio said, referring to banking regulators. “I bring this up because it was the regulator’s most interesting and insightful commentary on how important this matter is ultimately to the regulator.”

She was apparently referring to a Connecticut banking regulator involved in the 1st Alliance case, whom she did not name. No one is accusing Valerio of wrongdoing, but the 1st Alliance wanted the judge to allow a deposition to see what she actually heard.

On Tuesday, a state attorney called the 1st Alliance’s hearsay logic irrelevant because the hearing officer was not involved — and even if a comment angers a regulator, the lawyer said: “So what?”

Matt Smith, spokesman for the department, said in an email Wednesday: “The department supports the impartial actions we have taken thus far in the matter. Further details and information will be made available by the courts as they release transcripts of these proceedings.

Cordani did not rule on Valerio’s deposition request. But on Wednesday he agreed with the 1st Alliance that a large number of documents should have been admitted during the lengthy hearings of 2019 and 2020.

So back to the hearing officer, the case is remanded, for revisions to the order — or not — based on the new evidence.

It’s clear that this case is out of control whether or not 1st Alliance and DiIorio violated loan laws — and he and his attorneys insist the state’s interpretation is totally wrong.

DiIorio (pronounced de-OR-eo with a silent capital i) has formed a nonprofit, Reclaim Connecticut Inc., in an effort to reform what he calls the state’s overzealous business regulation — and he is, he said, a lifelong democrat.

Even though he violated the SAFE Act — and no other state has brought major charges despite several who have seen the evidence — this case underscores the need for a way to defuse those battles.

Judge Cordani’s message seems clear, now that he has returned the case to Perez and the hearing officer, now that he has said he may consider allowing a deposition from Valerio when and if the matter was up to him: solve it, people. Enter a room and clear this case.

This should have happened in 2018 and then in 2019 before the company collapsed. Now it may be too late.

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