Shumway added that the company had taken "substantial steps" to make sure "the compliance problems that occurred in the past do not repeat themselves" and asked the state to consider that many of the cited violations of Virginia law were not against the law where the loans originated.
Calusa attorney D. Kyle Deak of Richmond declined a request last week to interview Shumway. Deak said in a letter that Calusa "believes that it would be inadvisable to comment" on matters that may come up in the hearing appealing Face's license denial.
In March, federal regulators closed Guaranty National Bank in Tallahassee, which, with the Community Bank of Northern Virginia, was accused in lawsuits of predatory lending.
(Takumi Harada - Tallahassee Democrat)
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Efforts to reach Bapst, including a letter requesting an interview, were unsuccessful.
Legal documents from the licensing proceedings and lawsuits, as well as interviews with former employees, shed light on how the earlier Shumway-Bapst companies operated in soliciting homeowners who might be vulnerable to taking out high-cost loans.
Tougher Regulations
Federal law requires certain protections and disclosures for borrowers of so-called high-rate, high-risk loans, a category that includes those with interest rates more than 8 percentage points higher than the rate on Treasury securities and those whose closing costs exceed $499 or 8 percent of the loan amount. Federal law also requires that lenders document that they have taken into account a borrower's ability to repay the loan.
When the Federal Reserve issued regulations on the high-risk loan law, it noted, "Some abusive practices are clearly unlawful, but others involved loan terms that are legitimate in many instances and abusive in others, and thus are difficult to regulate."
In the past few years, regulators and prosecutors have cracked down on some predatory lending practices. In 2002, Household International Inc. agreed to pay borrowers $484 million, a few weeks after a division of Citigroup Corp. settled a case with the Federal Trade Commission for $215 million.
State laws to restrict predatory lending have been challenged by banks with headquarters outside the state that argue the rules do not apply to them.
William Brennan, an expert on predatory lending at the Atlanta Legal Aid Society, said predatory lending has proved difficult to police because federal laws governing mortgage lending place no limits on the interest rates and closing fees that can be charged to borrowers and because state laws vary widely. "The laws are sometimes contradictory, and regulators are often reluctant to get involved," he said.
Lenders also argue that they must be compensated for the risks they take in lending money to high-risk borrowers and that far from being coerced, borrowers sign up for high-cost loans voluntarily and in droves.
