HARTFORD, CT — The state Banking Department’s decision to pursue revoking the license of East Hartford-based mortgage firm 1st Alliance Lending came after it discovered that pre-approval screening staff were doing more than collecting information, an attorney for the department said Tuesday.

A hearing on the state’s revocation began Tuesday in an unremarkable Banking Department conference room in the agency’s Constitution Plaza offices.

1st Alliance has fiercely contested the state’s actions, and has accused the state of conducting an unfair and vindictive investigation to put the firm out of business. The company has said the intake employees were only a first step in the mortgage pre-approval process, and that nobody would have confused them with a decision-maker in the loan process.

Attorney Stacey Serrano in her opening statement said there was harm to consumers in Connecticut and nationally, even if it’s “non-quantifiable.” She said consumers dealing with these screeners, who were not licensed as mortgage loan originators, were steered toward particular products and were not offered the level of transparency they should have been.

“Consumers often understood these unlicensed MLOs to be the loan officer in the transaction,” Serrano said.

She said 1st Alliance ran a “boiler room” environment where unlicensed screeners were offered incentives and commissions to outperform each other. The state in its case is seeking a $1.5 million penalty and a permanent revocation of the 1st Alliance mortgage license, Serrano said.

Attorney Ross Garber, who represents 1st Alliance, said the state Banking Department has consistently overstepped its regulatory power and has provided little clarification on the rules it says 1st Alliance violated.

He said when the company was originally notified of the state’s concerns about the intake staff, it took immediate action to clarify their role. Even though 1st Alliance did not agree with the state’s interpretation, it deferred to the regulatory agency and changed its practices.

“I think it’s an amorphous definition of consumer harm,” Garber said. “Based upon what we’ve seen so far, it’s not the kind of consumer harm that would justify revoking this company’s license and crippling or fatally wounding it with penalties.”

He said the state has tried to characterize the firm as lax on compliance and misleading to consumers, but it would be hard for potential borrowers to think they were receiving a loan offer from a screener when the property address and loan amount were never discussed.

“This is not a company that was out there to be a scofflaw, this is a company that tried to comply with the laws. It also had written compliance policies, conducted training, conducted self audits. Not the kind of conduct you’d expect in a company that’s trying to somehow avoid the law,” Garber said. “This is a company that was regularly examined and audited by innumerable state and federal regulators both before and after this matter was brought.”

Evidence in the case is expected to last through Wednesday, and a continuation of the case beyond this week has not yet been scheduled. The hearing officer in the case is Cynthia Antanaitis, the Banking Department’s assistant director in the Securities and Business Investments Division.

Banking and 1st Alliance are also awaiting a decision on a separate conflict regarding the company’s bond expiration, which triggered an automatic license suspension. The company claims it relied on state advise when it tried to voluntarily surrender its license to conduct business with Connecticut consumers.

State officials, however, said the suspension is automatic if there is no bond in place, according to state statute. The company could have its state license reinstated at any time if it obtains a new bond, Serrano said. A decision in that case, which was heard by the same hearing officer, is expected soon. a dust-up over the company’s offer to settle the case by voluntarily surrendering its license to conduct business with Connecticut consumers.

1st Alliance has all but closed up as the case continues. Its CEO, John DiIorio, said the company is fighting the state’s allegations in order to clear its reputation and continue doing business in other states.

He said in August that the company is down to 17 employees from a peak of about 170 a few years ago, and that the remaining staff are prepared to resume operations if the case is resolved in the company’s favor.