An East Hartford-based mortgage lender that’s been embroiled in an unusually public dispute with the Connecticut banking regulators has officially lost its state license.
On Oct. 4, the Department of Banking posted an order to its website revoking the license of 1st Alliance Lending to act as a mortgage lender in the state.
While the department had been auditing 1st Alliance over its alleged use of unlicensed call center workers to initiate sales leads, the reason for the revocation late last week was that the company no longer had a surety bond in place, a form of insurance that is mandatory in Connecticut.
1st Alliance had previously carried a bond from The Hartford, but lost it in late July. That led to an automatic suspension of 1st Alliance’s license with the banking department.
The loss of license last week doesn’t end the matter, however. The banking department is still seeking a $1.5 million civil penalty against 1st Alliance. A hearing on that is scheduled to continue later this month, the department said.
The banking department began probing the company in mid-2018 after receiving a whistleblower complaint, and discovered alleged violations of state banking law related to the use of unlicensed employees.
Founder and CEO John DiIorio took things public several months later, announcing that the regulator’s insistence he pay for licenses was unusual and unfair. DiIorio said the audit had forced him to make significant layoffs and cancel a planned expansion in East Hartford.
He would later accuse the department of seeking to influence state regulators’ opinions in Iowa, where the company was also licensed.
Connecticut’s banking department says its well within its rights to talk to other regulators, since it has cooperative information sharing agreements, permitted by state law, with its regulatory counterparts in all other states, as well as with the federal government. The agreements are aimed at promoting more consistent regulation.
The company said it employed nearly 180 people when DOB began its audit last year. After layoffs, headcount dwindled to 17, and DiIorio announced in August that he would voluntarily shutter the business.
After his company lost its surety bond in July, DiIorio had tried to voluntarily surrender his license, rather than potentially having it revoked.
The banking department said state law forbids it from accepting a license surrender after license-revocation proceedings have already begun against a company.
On Thursday, 1st Alliance took a parting shot at banking department, which has disputed his claims that it singled out the company or treated it unfairly:
“1st Alliance Lending has ceased all mortgage related activities, surrendered all its licenses, and is on the brink of failure. Connecticut has lost 150 jobs as a result of this DOB action,” the company said in a statement to HBJ. “As for the Connecticut Banking Department’s order to revoke the company’s license, this was expected. It is part of the DOB’s unlawful campaign to regulate through a game of ‘gotcha’ and drive away a law-abiding company that other states welcome with open arms. We will appeal this decision to court, where the law – not some bureaucrat’s vision of what the law should be – applies.”
The banking department, in turn, released the following statement on the revocation: “The facts in this case point to the only conclusion that can be made in accordance with Connecticut banking law; 1st Alliance failed to fund a surety bond, even though there was opportunity to do so, as testified to during the hearing of John DiIorio himself,” it said. “Under Connecticut banking law, the commissioner had no choice but to suspend 1st Alliance’s license. At the time of the hearing, expedited at 1st Alliance’s request and agreed to by the department, no surety bond was in place, requiring the commissioner to revoke their license.”
Correction: An earlier version of this story incorrectly stated that the Department of Banking’s proceedings against 1st Alliance have come to a close. A proposed civil fine of $1.5 million remains pending, with a hearing slated for Oct 23-24.
This story has also been updated with comment from the banking department, and to correct several inaccurate details about actions taken by the department during the proceedings against 1st Alliance.