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Net Branching

Our firm has encountered thousands of illegal net branch arrangements over the years. In most scenarios, it is the branch manager that is punished most severely when confronted by state finance regulators. Illegal net branch managers potentially face large monetary sanctions, cease and desist orders, denial of license applications, permanent exclusion from the finance industry, and/or potential misdemeanor or felony criminal prosecution.


If any of the following conditions exist, you should seek immediate legal counsel:

  • The branch manager operates his/her own unlicensed corporation or limited liability company in connection with the branch activities of another company.
  • The branch manager operates a mortgage business in one or more states with his/her own unlicensed company.
  • The branch manager operates a company that “works through” or is “affiliated with” a licensed mortgage company or depository institution — which claims that the branch manager’s company does not need to be licensed in a particular state because the branch manager’s company is “covered” by that other company’s licensing.
  • The branch manager operates his/her own unlicensed corporation or limited liability company that receives ANY income derived from mortgage-related activities.
  • The branch manager and/or branch employees receive ANY compensation from the branch manager’s own unlicensed company.
  • The branch manager and/or branch employees are compensated on a 1099 basis for mortgage-related activities. NOTE: State licensing law and IRS rules must both be reviewed to make a correct determination.
  • Expenses of the branch are paid by the branch manager or by a company owned by the branch manager, and the employer/licensee does not provide full reimbursement for these expenses.
  • Branch managers and/or branch employees receive a small W2 compensation for each mortgage deal and the rest is paid on a 1099 basis as a “marketing fee”, and/or paid to a “marketing company” owned by the branch manager.
  • Branch managers and branch employees are not direct W2 employees of the licensee, and/or do not receive 100% of their income directly from that licensee.
  • The branch lease and/or telephone numbers is/are not in the name of the licensee.

This list is not exhaustive of all net branch “red flag” scenarios. If any of these conditions are true, or if you suspect that your mortgage company or branch office may be conducting illegal net branch operations, you should immediately seek legal counsel.

Sample Laws Prohibiting Net Branching

Rhode Island

The Finance Industry’s Licensing Authority Since 1996