The opinion of the court was delivered by: Judge Smith-ribner
BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge, HONORABLE BERNARD L. McGINLEY, Judge, HONORABLE DORIS A. SMITH-RIBNER, Judge, HONORABLE RENÉE COHN JUBELIRER, Judge, HONORABLE ROBERT SIMPSON, Judge, HONORABLE MARY HANNAH LEAVITT, Judge, HONORABLE JOHNNY J. BUTLER, Judge.
This case filed in the Court's original jurisdiction concerns the reach of Pennsylvania's usury laws in regard to "payday" loans that are made solely by means of the Internet. The Supreme Court has explained: "Payday loans are short-term, high-interest-or-fee loans that are generally secured by a post-dated check or a debit authorization executed by the borrower and, subsequently, presented by the lender after a predetermined period, usually set at two weeks to coincide with the borrower's payday." Pennsylvania Department of Banking v. NCAS of Delaware, LLC, 596 Pa. 638, 641, 948 A.2d 752, 754 (2008). The lending company has no office and no personnel physically present in Pennsylvania.
On July 26, 2008, the Secretary of Banking Steven Kaplan published in the Pennsylvania Bulletin a "Notice to those Engaging or Considering Engaging in Nonmortgage Consumer Lending to Pennsylvania Residents," 38 Pa. B. 3986 (2008) (Notice). The Notice advised interested persons that it is "the position of the Department of Banking (Department) that engaging in nonmortgage consumer lending to Pennsylvania residents by any means, including by means of the internet or by mail, constitutes engaging in such business 'in this Commonwealth' as contemplated by section 3.A of the Consumer Discount Company Act (CDCA), [Act of April 8, 1937, P.L. 262, as amended] (7 P.S. § 6203.A)." Id. Section 3.A provides:
A. [N]o person shall engage or continue to engage in this Commonwealth, either as principal, employe, agent or broker, in the business of negotiating or making loans or advances of money on credit, in the amount or value of twenty-five thousand dollars ($25,000) or less, and charge, collect, contract for or receive interest, discount, bonus, fees, fines, commissions, charges, or other considerations which aggregate in excess of the interest that the lender would otherwise be permitted by law to charge if not licensed under this act on the amount actually loaned or advanced, or on the unpaid principal balances when the contract is payable by stated installments except a domestic business corporation organized under or existing by virtue of the [Business Corporation Law of 1988 (BCL), 15 Pa. C.S. §§1101 -4161], after first obtaining a license from the Secretary of Banking of the Commonwealth of Pennsylvania in accordance with the provisions of this act.
A person licensed is authorized to negotiate and to make loans under the rates, terms and conditions contained in the CDCA, which can be higher.
The Notice advised that non-depository entities engaged in making such loans at more than 6% that are not already licensed must be licensed by February 1, 2009. Entities that wish to become eligible to engage in such lending must obtain a license. The Notice explained that the Department took the position in prior Interpretive Letters that a non-depository entity without offices of any kind in Pennsylvania or people physically present here and acting on behalf of the entity as principal, employee, agent or broker was not engaged in business "in this Commonwealth" within the meaning of Section 3.A and would not be required to obtain a license. With the rise in Internet-based lending activity it became clear to the Department that Pennsylvania consumers were "being exposed to the very lending practices that the CDCA was enacted to protect them from." 38 Pa. B. at 3987. The Department therefore determined that its previous position would no longer be followed and that licensing would be required for all such lenders, with a transition period requiring licensing by February 1, 2009.
Cash America Net of Nevada, LLC (Cash America) filed its petition for review in the nature of a complaint in equity on January 8, 2009 seeking to have the Notice declared unlawful and to enjoin Respondents from implementing or enforcing it. It averred that it is a limited liability company existing under the laws of Delaware and that it is qualified to do business in Nevada. Further, it has no personnel physically present in Pennsylvania acting as principal, employee, agent or broker and has no office of any kind in Pennsylvania. It characterized the Notice as a binding norm setting forth a bright-line non-discretionary rule.
In Count One of its petition Cash America requested a declaration that implementation and enforcement of the Notice constitutes un-promulgated rulemaking in violation of Pennsylvania law, and it sought an injunction against enforcement until the Department complied with requirements for promulgating a new regulation. In Count Two Cash America requested a declaration that an outof-state company with no office of any kind in Pennsylvania or people physically present here acting as principal, employee, agent or broker is not engaged in business "in this Commonwealth" as that term is used in Section 3.A; that implementation and enforcement of the Notice violates the plain language of the CDCA; and that the Department be enjoined from applying the Notice to out-of-state lenders that are not physically present in Pennsylvania. Count Three sought a declaration that implementation and enforcement of the Notice as of February 1, 2009 violates the Commerce Clause of the United States Constitution, although this challenge was abandoned as to the Department's requirement for each licensee to have a principal place of business or other physical location in Pennsylvania, which the Department rescinded by Interpretative Letter of December 18, 2008.
At a hearing on Cash America's request for a preliminary injunction, the parties agreed to file cross motions for summary judgment, and the Department agreed not to enforce the change of policy pending a decision by this Court. The Department first filed an Answer, and its filing included a Counterclaim for Declaratory Judgment alleging that Cash America is a Delaware limited liability company that is licensed by the Nevada Division of Financial Institutions with no offices, employees or agents physically present in Pennsylvania. In Paragraphs 9 -12 the Department averred that Cash America makes loans to Pennsylvania residents over the Internet in amounts of the lesser of 25% of the borrower's gross monthly income or $750, which are due on the first payday between 8 and 35 days from the date of the loan or, if none, in 14 days. Cash America assesses a finance charge of 25% of the amount borrowed. The annual percentage rate (APR) would be as follows: term 8 days, APR 1140.63%; term 14 days, APR 651.79%; term 35 days, APR 260.71%. Cash America admitted the averments of Paragraphs 9 - 12 in its Answer. Cash America also admitted earning approximately $20 million from Internet loans to Pennsylvania residents in fiscal years 2007 - 2008.
The Department asserted that Cash America was violating the CDCA by making covered loans without a license and that because it was not licensed it was prohibited from charging interest, fees, charges or other consideration that aggregate in excess of the annual percentage rate of 6% under Section 201 of the Act commonly known as the Loan Interest and Protection Law (LIPL), Act of January 30, 1974, P.L. 13, as amended, 41 P.S. §201. The Department requested a declaration that Cash America's Internet lending to Pennsylvania residents is not authorized by Pennsylvania law and violates the CDCA and the LIPL.
The Court turns first to the procedural issue that Cash America raises, i.e., that the Notice constitutes an invalid regulation because it was not adopted pursuant to the requirements of the Act commonly known as the Commonwealth Documents Law (Documents Law), Act of July 31, 1968, P.L. 769, as amended, 45 P.S. §§1102 - 1602.*fn1 Section 102(12) of the Documents Law, 45 P.S. §1102(12), defines the word "regulation" as "any rule or regulation, or order in the nature of a rule or regulation, promulgated by an agency under statutory authority in the administration of any statute administered by or relating to the agency, or prescribing the practice or procedure before such agency."*fn2
In Pennsylvania Human Relations Commission v. Norristown Area School District, 473 Pa. 334, 350, 374 A.2d 671, 679 (1977), the Supreme Court held that agency action constitutes a regulation, as opposed to a general statement of policy, when it purports to establish a "binding norm." In Norristown the court explained that a general statement of policy is neither a rule nor a precedent but is merely an announcement to the public of the policy that an agency intends to implement in future rulemakings or adjudications. A properly adopted substantive rule establishes a standard of conduct that has the force of law, and the underlying policy generally is not subject to challenge before the agency. Id. A statement of policy does not establish a binding norm. Id. To determine whether an agency has attempted to establish a binding norm without required procedure, courts consider the plain language of the enactment, the manner in which the agency implemented the provision and whether its discretion is restricted by the provision. R.M. v. Pennsylvania Housing Finance Agency of Commonwealth, 740 A.2d 302 (Pa. Cmwlth. 1999). Citing Eastwood Nursing & Rehabilitation Center v. Department of Public Welfare, 910 A.2d 134 (Pa. Cmwlth. 2006), Cash America submits that the Notice is a regulation: it provides that out-of-state lenders must be licensed, is not phrased in terms of future rulemakings and leaves no leeway as to licensure.
The Department counters that it issued the Notice under its authority pursuant to Section 202.D of the Department of Banking Code, Act of May 15, 1933, P.L. 565, as amended, 71 P.S. §733-202.D, to "issue statements of policy and interpretive letters necessary and appropriate to administer this act or any other statute within the department's jurisdiction to administer or enforce." The Notice merely interprets the CDCA and revises the Department's interpretation in prior interpretive letters. As Cash America admits, the Department's previous letters did not bind the courts or have the force of law. An interpretation established through interpretive letter may be changed by a new interpretive letter. The Department announced the change in the Pennsylvania Bulletin to assure the widest possible public notice. In terms of R.M., the plain language states that the Department is announcing a new interpretation that will be applied in the future; the manner is consistent with its authority under the Department of Banking Code to interpret the CDCA; and the Notice preserves discretion by stating that violators may be subject to enforcement. See Chimenti v. Pennsylvania Department of Corrections, 720 A.2d 205 (Pa. Cmwlth. 1998) (holding that document interpreting wiretapping act but reserving agency's discretion in applying the policy was a statement of policy), aff'd, 559 Pa. 379, 740 A.2d 1139 (1999).
The Court accepts the Department's position on this issue. Although Cash America insists that the Department's prior interpretations were correct, it concedes that they were contained in interpretive letters. The Department states that no principle of administrative law prevents an agency from reconsidering its interpretation of a statute that it enforces. The Department does not claim that its new interpretation is binding on the courts or even the Department. The manner of adopting the change was consistent with the Department's authority to enforce the CDCA through interpretive letters, and it reserved some discretion. The Notice therefore represents a statement of policy. See Insurance Fed'n of Pennsylvania, Inc. v. Insurance Department, 929 A.2d 1243 (Pa. Cmwlth. 2007) (holding that agency notice was statement of policy that interpreted existing law), judgment aff'd, __Pa.__, __A.2d__ (No. 89 MAP 2007, filed May 27, 2009).
Cash America argues on its substantive challenge that Section 3.A clearly and unambiguously excludes from the CDCA's purview an out-of-state lender with no principal, employee, agent, broker or office in Pennsylvania. Cash America submits that the phrase "either as principal, employe, agent or broker" is a modifier to the immediately preceding phrase "in this Commonwealth." Thus if a lender does not have a "principal, employe, agent or broker" in Pennsylvania, then the lender is not "in this Commonwealth." Cash America contends that this is the only interpretation that gives meaning to all of the act's words. See Lee Publ'ns, Inc. v. Dickinson School of Law, 848 A.2d 178 (Pa. Cmwlth. 2004) (stating that if possible courts must construe a law to give effect to all provisions so that all words have meaning and none are treated as surplusage); 1 Pa. C.S. §1921(a).*fn3 It points out ...