Olympia – The Washington State Department of Financial Institutions joined 41 states from around the country and the District of Columbia today in entering a Settlement Agreement and Consent Order against New Day Financial, LLC for violating state regulators’ Rules of Conduct for Test Takers. The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) requires that state-licensed mortgage loan originators (“MLO’s”) complete annual continuing education (CE). In order to meet the CE requirements contemplated under the SAFE Act, state-licensed MLO’s must complete eight hours of approved education. An investigation found that new MLO’s with the company engaged the company’s compliance staff to sit through multi-hour online CE programs and take the associated quizzes on their behalf. The Chief Executive Officer of New Day Financial, LLC, as well as the Chief Operating Officer acknowledged that CE requirements were completed for them by other employees. At least 20 employees had continuing education requirements taken for them by other New Day Financial, LLC employees. Company employees also took information from the testing program and stored that information so as to teach other employees what was on the test.
"This investigation really uncovered a corporate culture where attempts to get around the continuing education requirements was not only permitted but encouraged by upper management," DFI’s Director of Consumer Services Charles Clark said. “It is not surprising to see widespread problems like we saw in this case when upper management fails to lead by example and routinely breaks the rules themselves."
Breaking the Rules of Conduct Proves to be Costly for Employees and the Company
State regulators are requiring that the company pay a $5.16 million administrative penalty, of which Washington will receive $120,000. The company also is required to retain an independent auditing firm within 60 days to provide independent analysis and review of New Day’s policies and procedures to ensure compliance with the law. The auditing firm will be required to make recommendations for improving policies and procedures, and New Day will be required to report back to state regulators on its efforts to implement the recommendations. The Settlement Agreement and Consent Order requires New Day to remove the Chief Operating Officer, Paul Alger. Mr. Alger will be permitted to remain employed by the company but will no longer be permitted to hold a senior management position.
"Our continuing education requirements play a very important role in assuring that our licensed loan originators know the law and stay current with changing regulations so they can properly inform consumers," DFI Director Scott Jarvis said, emphasizing the seriousness of the company’s transgressions. "Deviation from these requirements creates an unnecessary risk to consumers and suggests a general disregard for following the rules. The remedial measures and fine in this case send a clear message that we will not tolerate such dishonest conduct."
Prior to the entry of the settlement, New Day Financial, LLC implemented numerous self-imposed remedial measures, including terminating the head of its Virginia sales division, the head of its television division, the head of recruiting, the Delaware Branch Manager, and a Vice President for sales. It also demoted and/or reduced pay of certain MLOs who acknowledged allowing others to complete their continuing education requirements. Additionally, New Day required that employees with a continuing education requirement for 2013 retake those courses in a proctored and controlled environment and will require such a controlled environment for all future CE courses.