The Consumer Financial Protection Bureau has filed a lawsuit against a defunct Connecticut mortgage lender and its principals, including the current owner of a Sturbridge-based mortgage company.

The lawsuit charges 1st Alliance, an East Hartford company that shut down in 2019, with using unlicensed employees and other unlawful mortgage lending practices.

Also named in the lawsuit are 1st Alliance’s former principals and executives, including CEO John DiIorio, who is now the managing member of Phoenix Home Lending LLC in Sturbridge. The other principals named are Kevin Robert St. Lawrence and Socrates Aramburu.

In a statement emailed to Banker & Tradesman by a company spokesperson, 1st Alliance denied the CFPB’s allegations, saying they were “not based in fact.”

“The attack on the principals is especially egregious,” the statement said. “There is no truth to the assertion that Soc, Kevin, and/or John, ever, acted in any way to harm consumers.”

Friday’s lawsuit, which was filed in Connecticut’s U.S. District Court, is in addition to an ongoing investigation into the company by the Connecticut Department of Banking.

The CFPB alleged that 1st Alliance, DiIorio, St. Lawrence and Aramburu violated several regulations governing mortgage originations, including the Truth in Lending Act (TILA), the Fair Credit Reporting Act (FCRA), the Equal Credit Opportunity Act (ECOA), the Mortgage Acts and Practices-Advertising Rule (MAP Rule) and the Consumer Financial Protection Act of 2010 (CFPA).

According to a statement from the CFPB, 1st Alliance began in 2015 using unlicensed employees for its mortgage origination activities, including interactions with consumers that required them to be licensed under state law.

The CFPB also alleged that 1st Alliance’s use of unqualified sales employees “to deprive consumers of critical, accurate, and timely loan information was unfair.”

The lawsuit also said 1st Alliance’s employees violated other regulations, including by requiring consumers to submit documents that verified information relating to the consumer’s residential mortgage application before providing them a loan estimate.

1st Alliance employees also allegedly denied credit to consumers based on information in their consumer report or in response to their application without giving consumers the “adverse action” notice required under FCRA and ECOA, the CFPB said.

The CFPB additionally alleged that 1st Alliance representatives misled consumers.

“These included misrepresentations, omissions, or practices concerning whether 1st Alliance’s employees were licensed mortgage-loan originators, whether the consumer had been preapproved or guaranteed for a particular program or term, and whether and on what terms the consumer was likely to obtain refinancing, in violation of the MAP Rule and CFPA,” the CFPB said.

The complaint “seeks injunctions against the defendants, as well as damages, redress to consumers, disgorgement of ill-gotten gains, and the imposition of civil money penalties.”

In its statement, 1st Alliance acknowledged that its practices were unusual but insisted they were legal.

“1st Alliance Lending served the underserved in cooperation with HUD.  Our systems of origination were built to accommodate those programs,” the statement said. “Atypical, yes. Illegal? Not according to the Multi-State Mortgage Committee, or the dozen or so individual states that examined our practices across the country, finding them compliant.”

1st Alliance also said the lawsuit pointed to regulatory risks facing the industry.

“We are confident we will prevail, but the industry should understand the new risks facing individuals,” the statement said. “If bad faith actions don’t exist, and there is no evidence of consumer harm, certain individuals at the CFPB will attempt to create them out of thin air in defense of a state regulator they hope to assist in a separate matter….This is a very sad day for sound, honest regulation. We will put forth a rigorous defense, will prevail; and then hold some bad actors accountable.”