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A behind-the-scenes fight over staff licensing between a state-supported East Hartford home-mortgage lender and Connecticut’s bank regulator has spilled into the public, with the lender announcing Thursday the feud has prompted it to cease operations.
John DiIorio, founder and CEO of 1st Alliance Lending LLC, in a statement Thursday slammed the state Department of Banking (DOB) for “unreasonably” targeting his business.
DiIorio is scheduled to announce the closure Thursday afternoon at a press conference flanked by the company’s 17 remaining employees.
The Connecticut Department of Banking (DOB), which charters and licenses banks, credit unions, investment brokers and other financial-services providers, says 1st Alliance’s woes are its own making and that its shutdown is tied to the loss of a surety-bond coverage.
Without a surety bond as an insurance shield in the case of financial malfeasance, Connecticut bank statutes mandate an automatic suspension of the financial firm’s charter/license to do business in the state, said Matthew Smith, DOB director of government relations and consumer affairs.
“They could still operate in Connecticut, if they had a surety bond,” Smith said Thursday. “They’re entitled to their due process. They can still operate.’’
1st Alliance employed 178 people when DOB began an audit in May 2018 looking at whether its hiring practices complied with an interpretation of state and federal laws requiring that staff at mortgage lenders be licensed if their jobs require them to interact with consumers.
DOB later said 1st Alliance violated those laws by allowing non-licensed employees to field calls, receive applications and negotiate the terms of home loans with customers. Those actions, DOB argues, violate licensing rules set in the federal law that was written following the 2008 housing crisis.
But DiIorio said no other state has agreed with DOB’s interpretation that 1st Alliance has violated licensing mandates, and accused the department of interfering in other state’s regulatory processes. Moreover, he said DOB has not identified a consumer that has been negatively impacted by its lending practices.
He said 1st Alliance, a former lead tenant of East Hartford's 111 Founders Plaza office tower, has changed its practices to comply with DOB’s “atypical” interpretation through a series of previously announced layoffs and numerous attempts to settle with state bank regulators. It even offered to pay for DOB’s investigation, DiIorio added.
DiIorio said his group has not acted unlawfully, noting that DOB’s actions show “why many people say Connecticut is a difficult place to do business.”
“DOB decided that some of our employees who were not licensed should be licensed,” said DiIorio, who founded 1st Alliance in 2004. “They made contact with their counterparts in other states and urged them to look at the case, and agree with DOB’s interpretation. As of this moment, over 30 states have looked at it, and none of them agree with” DOB.
In January, 1st Alliance said it sent a Freedom of Information (FOI) request to the state banking department seeking certain documents to determine whether regulators had been attempting to improperly influence other states looking into the licensing issue.
DOB produced thousands of documents in April and July, but DiIorio said the April release only responded to a request submitted in Aug. 2018 by a “different party.”
On July 12, an FOI hearing officer ordered DOB to hand over all responsive, non-exempt documents by July 31, and all other responsive, non-redacted documents by Thursday for his inspection, 1st Alliance said.
“For six months DOB stonewalled us on this January 2019 FIO request, dragging their feet and only producing documents when ordered to, or duplicates of ones they’d already produced," Dilorio said.
Smith, meantime, rebutted DiIorio’s claims that bank regulators have “gagged’’ him from publicly discussing elements of their dispute, and that the agency has purposely dragged its feet answering 1st Alliance’s FOI request covering thousands of agency documents.
Smith said the tussle between the agency and 1st Alliance has continued for nearly a year. Before and during that period, however, Smith said Dilorio’s expansion plans for Connecticut have been plagued “with stops and starts.”
“I don’t know how much of a commitment he has,’’ Smith said.
1st Alliance also was licensed to operate in New Hampshire, Iowa and Pennsylvania.
Iowa’s banking agency said Thursday 1st Alliance was still licensed to operate there and had posted a surety bond. It declined comment on whether the lender is under, or faces, any regulatory sanctions.
New Hampshire’s banking department said that as of Thursday, 1st Alliance was still licensed to operate there. It lists no regulatory actions pending against the lender.
Pennsylvania bank regulators did not immediately respond to a request for comment.
DiIorio says DOB’s actions drove much of the layoffs and the subsequent closure.
“I hope DOB is satisfied,” he said in his statement. “As long as they continue to operate this way, it’s the state of Connecticut that loses.”
1st Alliance had a peak of 178 employees and was expected to top 300 workers after receiving $6 million from the state Department of Economic and Community Development to open a new call center in Putnam.
You would think every one of Gov Lamont's Dept Heads would be "bending over backwards" making every attempt to create harmony with this employer of 178 employees. Carl Slicer, Vernon.
Thanks state of CT!
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