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Court Upholds Conn. Banking Department Actions Vs. 1st Alliance

David Krechevsky
Apr 24, 2023
gavel in courtroom

Defunct East Hartford lender loses on appeal; still facing CFPB lawsuit.

A Connecticut Superior Court judge has upheld a Connecticut Department of Banking’s administrative action against 1st Alliance Lending LLC, dismissing the defunct company’s appeal.

In a decision issued April 19, New Britain Superior Court Judge John L. Cordani affirmed that 1st Alliance had violated the Secure And Fair Enforcement (SAFE) Act, the Fair Credit Reporting Act, and the Truth in Lending Act, and had failed to cooperate with Banking Department investigators. 

In addition, Cordani concluded that the department was within its statutory authority when it revoked 1st Alliance’s license and imposed a $750,000 civil penalty.

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The ruling stems from a lawsuit filed by the owner of the formerly East Hartford-based lender, John DiIorio, who founded 1st Alliance in 2004 and has said the state has overreached in its actions against his company. He has consistently denied any wrongdoing. 

The department began investigating his company in 2018 on allegations that it used unlicensed staff to process mortgage applications. 

Following the Superior Court decision, Connecticut Banking Commissioner Jorge Perez said he was pleased with the decision, “since this has always been about protecting consumers. We have remained confident in our positions, which the courts have now affirmed.”

Connecticut Attorney General William Tong echoed those comments.

“The Superior Court dismissed 1st Alliance’s administrative appeal,” Tong said. “As a result, the banking commissioner’s final decision — which imposed a civil penalty and revoked 1st Alliance’s license for its numerous violations of our mortgage lending laws — stands.”

The appeal arose from a final decision dated April 16, 2021, which was followed by a supplemental decision on April 5, 2022. 

The Banking Commissioner found 1st Alliance had violated state and federal laws, including: 

  • 1st Alliance’s business model unlawfully encouraged lesser trained employees to perform mortgage loan origination activities without the licenses required by the Connecticut SAFE Act.
  • The lender failed to provide written notice, known as adverse action notices, when denying credit to a consumer or refusing to grant credit in the amounts or on the terms requested by the consumer, as required under the Fair Credit Reporting Act.
  • 1st Alliance prematurely required consumers to verify information related to their application prior to providing the required loan cost estimates and other disclosures, in violation of the Connecticut’s Truth In Lending Act, which as the court noted deprived consumers of the ability to “more effectively shop for the best loan terms” before being “lock[ed] into a purchase agreement.”
  • The lender improperly refused to comply with a lawful investigatory subpoena issued by the department (its regulator) and provided misleading responses to the department’s document requests regarding the company’s termination of its employees.

In affirming the violations, the court found that 1st Alliance’s "numerous and clear" violations of federal and state laws “arose from systemic issues.” The court also remarked that 1st Alliance’s “practices push[ed] [its] employees to the very brink of non-compliance by design. Unsurprisingly, the record reveals that the … risks manifested into actual violations. ... [1st Alliance] purposefully designed its business operations in a manner that increased the likelihood of violations” to lower its expenses and ensure “aggressive sales.”

Finally, the court noted that, in a separate administrative proceeding, the Connecticut Supreme Court held that the commissioner had properly revoked 1st Alliance’s license due to its failure to maintain a surety bond, as required by Connecticut law. 

A lawsuit filed by the federal Consumer Financial Protection Bureau (CFPB) against 1st Alliance and DiIorio alleging similar violations is still pending in the U.S. District Court for the District of Connecticut.

An attorney for DiIorio did not immediately respond to a request for comment.

Apr 24, 2023
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