Department of Financial Institutions

Key Takeaways

• The Department of Financial Institutions (DFI) is the Washington agency created by RCW 43.320.010 to regulate banks, credit unions, consumer loan companies, mortgage brokers, loan originators, servicers, and securities firms.
• Escrow agents and escrow officers are licensed by DFI under chapter 18.44 RCW, the Escrow Agent Registration Act, and not by the Department of Licensing.
• Real estate brokers and managing brokers are licensed by the Department of Licensing under chapter 18.85 RCW, so a complaint about a broker goes to DOL and a complaint about a lender goes to DFI.
• A consumer complaint about a bank, credit union, payday lender, mortgage servicer, or escrow company is filed with DFI.

What It Means

The Department of Financial Institutions, almost always shortened to DFI, is the Washington state agency that regulates the money side of a real estate transaction. RCW 43.320.010 creates the department, headed by the director of financial institutions, and directs it to protect the public interest, protect the safety and soundness of depository institutions and entities under its jurisdiction, and protect the interests of investors. In practice that reaches banks, credit unions, consumer loan companies, payday lenders, mortgage brokers and loan originators, mortgage servicers, escrow companies, and securities brokers and dealers.

The useful way for a licensee to hold it is by who receives the complaint. DFI regulates the people who lend, service, and hold the money. The Department Of Licensing regulates the people who list, show, and sell the property. A Mortgage Broker answers to DFI. A real estate broker answers to DOL. The Escrow Officer who runs the closing is the one that catches students out, because escrow feels like part of the sale and escrow licensing sits with DFI.

DFI also publishes consumer warnings, and the course leans on its list of predatory lending practices, equity stripping among them, when it teaches how to spot a loan built to fail.

How It Works in Washington

DFI's authority comes from a stack of Washington chapters, and every one of them names the same director. RCW 43.320.010 creates the department. Under RCW 19.146.200, a person may not engage in the business of a mortgage broker or loan originator without first obtaining and maintaining a license under the Mortgage Broker Practices Act, and RCW 19.146.010 defines director as the director of financial institutions and department as the state department of financial institutions. The Consumer Loan Act runs the same way. RCW 31.04.035 says no person may engage in any activity subject to that chapter without first obtaining and maintaining a license, and RCW 31.04.015 again points to the director of financial institutions.

Escrow is the piece most likely to show up as an exam question. RCW 18.44.021 requires a valid license issued by the director to perform escrows or escrow functions, and RCW 18.44.011 defines that director as the director of financial institutions and a licensed escrow officer as a natural person handling escrow transactions and licensed as such by the director. Now compare RCW 18.85.011, where director means the director of the department of licensing and department means the Washington department of licensing. That is the whole line. Real estate licensing runs through the Department of Licensing, and lending, servicing, and escrow run through DFI.

Example

Dana Whitfield is a broker in Everett. Her buyer, Tom Oyelaran, is financing $415,000 through a mortgage broker who quoted 6.5 percent, then produced a note at 7.25 percent with a $6,200 origination fee nobody had disclosed. Escrow is being handled by Sound Cascade Escrow, and the escrow officer will not account for Tom's $10,000 in earnest money after the deal collapses.

Both of Dana's complaints go to the same agency, and it is not the one she expected. The switch on the loan terms goes to DFI, because RCW 19.146.200 licenses that mortgage broker and DFI supervises the Mortgage Broker Practices Act. The escrow officer's handling of the funds also goes to DFI, because RCW 18.44.021 puts escrow licensing under the same director. If instead Dana's own managing broker had mishandled the transaction file, that complaint would go to the Department of Licensing under chapter 18.85 RCW. One closing table, two regulators, and sorting out which door to knock on is the licensee's job. Our walkthrough of a first Washington closing shows where each of these players sits.

Common Mistakes and Exam Traps

• DFI and the Department of Licensing are not the same agency. DOL licenses real estate brokers and managing brokers under chapter 18.85 RCW, and DFI licenses lenders, mortgage brokers, servicers, and escrow agents.
• Escrow licensing is the classic swap on this topic. Escrow agents and escrow officers are licensed by DFI under chapter 18.44 RCW, even though escrow work happens inside a real estate sale.
• DFI is a state regulator, not a federal one. The Consumer Financial Protection Bureau enforces federal rules such as RESPA, and DFI enforces the Washington chapters.
• Fair housing complaints do not go to DFI. Housing discrimination charges go to the Washington State Human Rights Commission, and DFI handles complaints about lenders, servicers, and escrow companies.