Department of Financial Institutions Strategies in Prosecuting Cases

Department of Financial Institutions Strategies in Prosecuting Cases

This is the third and final article discussing the litigation process with the Department of Financial Institutions (“DFI”) under the Mortgage Broker Practices Act. This final article will cover strategies employed by DFI in order to secure favorable consent orders in circumstances where they have limited funds to take cases to administrative hearings.

If faced with charges, a licensee should:

1.  Consult with an attorney immediately and2.  Do not make statements to investigators.While the enforcement process is archaic, a competent attorney can help you navigate through the process.  There are five main strategies that I have seen employed in the past two years.

Five Main Strategies

Recently DFI has refused to license branch offices of mortgage brokerages where an employee who faces charges works. However, WAC § 208-660-350 requires that DFI license a branch office so long as the mortgage broker for the company is in good standing and that the address of the branch office is noted. Accordingly, there is no basis for such a denial, but it buts enormous pressure on the employee to settle or risk their job.Second, DFI has attempted to deny an accused party of re-licensing while resolution of the charges is still pending. This has proven to be an unsuccessful strategy as re-licensing is largely an administrative function.Third, DFI has attempted to deny licenses to those pending charges on grounds ostensibly unrelated to the pending charges. For example, if a mortgage broker or loan originator has experienced a foreclosure in the past year, DFI has attempted to use that fact to deny a license. While there is a statutory basis for this denial, in the present economy that rule has become outdated. Further, it is selectively applied. This strategy has proven to be effective.DFI has responded to potential employers by telling them not to hire licensees who are currently facing charges. This strategy has mixed results as, if the licensee is out of work, they don’t have the money to settle and often feel like they have little to gain by settling as they already have effectively been banned from the industry.Last, DFI has removed Interpretive letters and policy statements. When Deborah Bortner was appointed as Director of Consumer Services she removed these from the website. Currently there is one interpretive letter relating to the MBPA and few relating to other areas under DFI’s authority. These are the “precedents” of administrative law and clearly DFI wants courts to defer to its expertise rather than concrete direction.Licensees can always insist on going to an administrative hearing to resolve the complaint. Hearings are regulated by the Administrative Procedures Act, RCW § 34.05. State agencies are represented by the Attorney General’s Office. Licensees should know that a hearing is expensive and can last as long as a week.If the decision goes against the licensee, they can ask the Administrative law Judge (ALJ) to reconsider their decision. RCW § 34.05.470. Appeal can also be made to the Director. RCW § 34.05.464. Appeal to the Director has been successful at times. Appeal from the Director’s determination can be made to the Superior Court. The party must have exhausted their administrative remedies first. The burden is very heavy, due to the deference owed to regulatory agencies in their interpretation of their governing statutes. From the Superior Court, appeals can be made to the Court of Appeals, RCW § 34.05.518, and the Supreme Court, RCW § 34.05.536.

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