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Our law firm has encountered hundreds of illegal mortgage net branch arrangements over the years.  Although net branching was virtually eradicated in the early 2000’s through massive enforcement actions against industry violators, net branching continues to resurface over time.  This cyclical net branch resurgence is due to the fact that new franchise marketing promoters are born every day, and they continue to target the consumer finance industry as a franchise opportunity.  Franchising marketers jump into mortgage net branching (or net branching of other forms of consumer lending) without any knowledge of state licensing laws, or of regulatory enforcement history.

Regardless of the facts, the story always ends the same way:  both the net branching company and the net branch manager are subject to serious administrative enforcement actions by state licensing regulators.   Violators may face large monetary sanctions, license revocations, cease and desist orders, denial of license applications, permanent exclusion from the finance industry, and/or potential misdemeanor or felony criminal prosecution.

Sample Laws Prohibiting Net Branching

Rhode Island

The Finance Industry’s Licensing Authority Since 1996