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SALIX STATE BANK v. COMMONWEALTH PENNSYLVANIA (04/09/80)

decided: April 9, 1980.

SALIX STATE BANK, PETITIONER
v.
COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF BANKING, RESPONDENT



Original jurisdiction in case of Salix State Bank v. Department of Banking of the Commonwealth of Pennsylvania.

COUNSEL

Edward F. Peduzzi, of Myers, Taylor & Peduzzi, for petitioner.

John E. Nanorta, Chief Counsel, with him Bonnie Jean McRobbie, Assistant Attorney General and Edward G. Biester, Jr., Attorney General, for respondent.

President Judge Crumlish and Judges Wilkinson, Jr., Mencer, Rogers, Blatt, Craig and Williams, Jr. Judge MacPhail did not participate. Opinion by Judge Wilkinson, Jr.

Author: Wilkinson

[ 50 Pa. Commw. Page 404]

Pursuant to Pa. R.C.P. No. 1035, the respondent Department of Banking (Department) has filed its motion for summary judgment on a petition for review in which petitioner Salix State Bank (Salix) seeks an order of this Court reversing a Department order and enjoining the Department from requiring Salix to rebate to borrowers alleged unlawful interest charges. The case has proceeded as one within the Court's original

[ 50 Pa. Commw. Page 405]

    jurisdiction in the nature of a complaint in equity questioning a governmental determination. See Pa. R.A.P. 1512(c), 1513. In Salix State Bank v. Department of Banking, 36 Pa. Commonwealth Ct. 120, 387 A.2d 673 (1978), we dismissed the Department's preliminary objections to the petition for review and directed the Department to file an answer; it did so. Salix and the Department have agreed to a stipulation of facts.

The governmental determination in question is a letter dated July 1, 1977 issued by the Deputy Secretary of Banking finding that certain insurance premium financing contracts entered into by Salix constitute direct rather than third party loans, thereby subject to lesser lawful maximum interest rates than charged by Salix, and directing Salix to rebate the excessive interest charges.

From the stipulation of facts the Court discerns the following essential facts. Insurance agents or brokers assisted customers by securing the issuance of insurance policies upon collection of at least 25 percent to 30 percent of the total premiums charges as down payment from the insureds and by filling out forms provided by Salix whereby the insureds sought financing for the balance of the premiums due. The agents or brokers submitted completed forms to Salix for examination and acceptance. The insurance company issuing the policy was not a party to any application for premium financing; its name appeared on the forms only in the context of the insured's representation to Salix that the insurance policies were issued and in effect. If upon examination the filled out forms were acceptable to Salix, it would process the loan. Salix prepared checks in amounts representing the balance due on the total insurance premiums, made the checks payable to the agents or brokers who submitted the forms to Salix, and mailed the checks to the

[ 50 Pa. Commw. Page 406]

    named agents or brokers. The insureds were required to make installment payments to Salix. If the insured was in default on any installment payments for a period of 15 days or more, Salix would call the agent or broker and direct cancellation of the insurance policy. The interest rates charged in connection with the loans made by Salix through the use of these instruments ranged from 15 percent to 35 percent annual percentage rate, with the average in the range of 18 percent to 19 percent annual percentage rate. Under the terms of the form, the insureds assigned to Salix, as security for the payment of the balance due on the insurance premiums, certain non-vested rights they either had or may have under the insurance policy, including rights to dividends, unearned premiums, and agent's or broker's commissions which may become payable to the insureds. Through the forms the company issuing the insurance policy made no assignment of any rights.

Section 309(a) of the Banking Code of 1965 (Code), Act of November 30, 1965, P.L. 847, as amended, 7 P.S. ยง ...


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