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Pennsylvania Dep't of Banking v. NCAS of Delaware

April 28, 2010

PENNSYLVANIA DEPARTMENT OF BANKING, AND COMMONWEALTH OF PENNSYLVANIA, ACTING BY ATTORNEY GENERAL THOMAS W. CORBETT, JR., PLAINTIFFS
v.
NCAS OF DELAWARE, LLC, D/B/A ADVANCE AMERICA CASH ADVANCE CENTERS, AND ADVANCE AMERICA CASH ADVANCE CENTERS, INC., DEFENDANTS



The opinion of the court was delivered by: Judge McGINLEY

Argued: November 5, 2009

BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge, HONORABLE BERNARD L. McGINLEY, Judge, HONORABLE DAN PELLEGRINI, Judge, HONORABLE RENÉE COHN JUBELIRER, Judge, HONORABLE ROBERT SIMPSON, Judge, HONORABLE MARY HANNAH LEAVITT, Judge, HONORABLE JOHNNY J. BUTLER, Judge.

OPINION

Presently before this Court are the preliminary objections (P.O.s) of NCAS of Delaware, LLC (NCAS)*fn1 , Advance America Cash Advance Centers (Advance America)*fn2 , and Advance America Cash Advance Centers, Inc (AA)*fn3 (collectively, Defendants) to the amended complaint filed by the Department and the Attorney General (collectively, Plaintiffs).*fn4

I. Prior Matter: Original Complaint

This matter first commenced on September 27, 2006, when the Department filed a complaint against NCAS d/b/a Cash Advance Centers and alleged Cash Advance Centers violated the Consumer Discount Company Act (CDCA)*fn5 and the Loan Interest and Protection Law (LIPL).*fn6

The complaint further alleges that on June 20, 2006, the Cash Advance Centers began to offer a new line of credit product in Pennsylvania that was not in partnership with a bank. Under Cash Advance Centers' new line of credit product, a $500 credit line is provided to qualifying Pennsylvania borrowers. Cash Advance Centers charges interest on the advances in the form of simple interest at a daily periodic rate that corresponds to an annual percentage rate of 5.98%. In addition, Cash Advance Centers charges borrowers a monthly participation fee of $149.50 per month (the Monthly Participation Fee).

. . . Specifically, Section 3(A) of CDCA, 7 P.S. § 6203(A) prohibits, with respect to loans or advances of money or credit of $25,000 or less, any business that has not obtained a license from the Secretary of Banking under the CDCA from charging, collecting, contracting for or receiving 'interest . . . . fees . . . charges or other consideration' which aggregate in excess of the maximum allowable interest rate that an unlicensed lender would be permitted to charge under Pennsylvania law on the amount loaned or advanced. The Department avers that the line of credit product offered by Cash Advance Centers is a loan or advance of money or credit within the meaning of section 3(A) of the CDCA, 7 P.S. § 6203(A). Cash Advance Centers has not obtained a license from the Secretary of Banking pursuant to the CDCA.

Additionally, the Department alleges pursuant to Section 201 of the LIPL, 41 P.S. § 201, that Cash Advance Centers is prohibited from charging for its line of credit products interest, fees, charges or other consideration which aggregate in excess of six percent (6%). (footnote omitted).

Pennsylvania Department of Banking v. NCAS of Delaware, LCC (NCAS I), 931 A.2d 771, 774 (Pa. Cmwlth. 2007), affirmed, 596 Pa. 638, 948 A.2d 752 (2008).

Before this Court in NCAS I were the Department's motion for judgment on the pleadings and Cash Advance Centers' cross-motion for judgment on the pleadings:

This Court must disagree with Cash Advance Centers' assertions. While Section 3(A) of the CDCA, 7 P.S. §6203(A), limits charges on the 'amount actually loaned or advanced', clearly, the Monthly Participation Fee is a necessary condition before Cash Advance Centers provides a credit advance and is paid in connection with any advance. It is a charge inextricably related to the 'amount actually loaned or advanced.' Accordingly, Cash Advance Centers' unlicensed lending practices violate Section 3(A) of the CDCA, 7 P.S. § 6203(A). Department's motion for judgment on the pleadings with regard to the CDCA is granted and Cash Advance Centers' [Advance America's] cross-motion for judgment on the pleadings is denied as to the CDCA. . . . .

Unlike Section 3(A) of the CDCA, which provides for the aggregation of fees and charges, the plain language of Section 201 of the LIPL, 41 P.S. § 201, makes no mention of the aggregation of fees and charges, but instead refers only to the 'lawful rate of interest'. . . .

Without the development of an evidentiary record, this Court is constrained to conclude at this early stage of the proceedings, the record does not establish that the Monthly Participation Fee of $149.95 should be considered sham interest which, combined with the stated interest rate of 5.98%, establishes a violation of Section 201 of the LIPL, 41 P.S. § 201. Therefore, the Department's motion for judgment on the pleadings with regard to the LIPL is denied. Similarly, this Court does not have sufficient information before it to conclude that the LIPL does not prohibit Cash Advance Centers' current lending activities in Pennsylvania and therefore, Cash Advance Centers' cross-motion for judgment on the pleadings is denied as to the LIPL. . . . .

The Department has requested injunctive relief to permanently enjoin Cash Advance Centers from continuing its lending activities in the Commonwealth of Pennsylvania and from collecting on lines of credit or loans currently outstanding in the Commonwealth of Pennsylvania pursuant to the CDCA violation. The Department's requested injunctive relief is granted for as long as the violation of the CDCA continues.*fn7 (emphasis in original and added and footnote omitted).

Id. at 779-81.

II. Present Matter: Amended Complaint

On December 16, 2008, Plaintiffs filed an amended complaint and alleged:

11. AA has conducted trade or commerce in Pennsylvania through Advance America and through another subsidiary using the "Advance America" brand ("Subsidiary"). (emphasis added). . . . .

15. Until March 27, 2006, AA operated in Pennsylvania through the Subsidiary that had registered as a loan broker under the Credit Services Act*fn8 . . . 73 P.S. §§ 2181-2192, in which capacity AA described itself as having operated "as marketing, processing, and servicing agent of a Federal Deposit Insurance Corporation ("FDIC") supervised institution that offered payday cash advances and installment loans." (Quoting from AA Form 8-K, filed with United States Securities and Exchange Commission June 19, 2006).

16. The FDIC-supervised institution described in paragraph 15, above, was a bank located outside the Commonwealth of Pennsylvania, and AA operated in the above-described manner on the theory that the out-of-state location of the bank would permit the Subsidiary to broker payday loans with interest rates determined by the laws of a state other than the Commonwealth of Pennsylvania pursuant to federal law and to avoid interest rate and fee caps imposed by Pennsylvania law on payday loans that the Subsidiary offered to Pennsylvania residents using this method.

17. As reported in the AA Form . . . "the FDIC instructed the lending bank for Pennsylvania . to discontinue offering payday cash advances and alternative credit products if they could not adequately address the FDIC's concerns. In response to the FDIC's instructions, the lending bank for Pennsylvania ceased its payday cash advance and installment loan originations as of the close of business on March 27, 2006."

DEFENDANTS' BUSINESS PRACTICES

18. On June 20, 2006, Advance America began offering in Pennsylvania a new line of credit product, not in partnership with a bank, in place of its prior payday loan products. (emphasis added).

19. Under Advance America's line of credit product, Advance America provided a $500 credit line to qualifying Pennsylvania borrowers. Advance America charged interest on these advances in the form of simple interest at a daily periodic rate that corresponds to an annual percentage rate of 5.98%. In addition, Advance America charged borrowers a "Monthly Participation Fee" of $149.95 per month. . . . .

22. At all times Advance America offered its line of credit product in Pennsylvania, Advance America was acting as AA's agent. (emphasis added).

23. AA directed, supervised, controlled, approved, formulated, authorized, ratified, benefitted from, and participated in Advance America's acts and practices in Pennsylvania. (emphasis added).

24. Advance America offered the line of credit product acting in concert with AA in furtherance of their common efforts and pursuant to a common design with AA to circumvent the maximum interest rate and fee limitations under Pennsylvania law, and with AA's substantial assistance toward this objective. (emphasis added).

25. Both Advance America and AA benefited financially through Advance America's offering of the line of credit products in Pennsylvania. (emphasis added).

COUNT I: VIOLATION OF THE CONSUMER DISCOUNT COMPANY ACT

(Commonwealth v. All Defendants)

28. The line of credit product offered by Advance America was a loan or advance of money or credit within the meaning of Section 3.A of the Consumer Discount Company Act, . . . 7 P.S. § 6203.A (supp.2006). (emphasis added).

29. Advance America has never obtained a license from the Secretary of Banking pursuant to the Consumer Discount Company Act. (emphasis added).

30. No other Pennsylvania or federal law applicable to Advance America authorized Advance America to charge a "Monthly Participation Fee" of $149.50 together with an interest rate of approximately 5.98% to consumers for a line of credit product.

31. Because Advance America was not licensed pursuant to the Consumer Discount Company Act, Advance America was prohibited from charging for its line of credit product interest, fees, charges or other consideration with aggregate in excess of the annual interest rate of 6 per cent under Section 201 of the Loan Interest and Protection Law, Act of January 30, 1974, P.L. 13, 41 P.S. § 201. (emphasis added). . . . .

36. AA is bound by the claims or issues determined by the Order [July 31, 2007], because AA is in privity with Advance America and because Advance America acted as the agent of AA, under AA's control, with AA's authority, and at AA's direction. (emphasis added). . . . .

38. Until the Commonwealth Court entered the Order of July 31, 2007, Advance America continued to do business at loan centers throughout the Commonwealth of Pennsylvania.

39. By illegally charging consumers of its line of credit product a "Monthly Participation Fee" of $149.50 together with an interest rate of approximately 5.98%, Advance America has injured the economic health and well-being of the Commonwealth's citizens. . . . .

COUNT II: VIOLATION OF THE LOAN INTEREST AND PROTECTION LAW

(Commonwealth v. All Defendants)

42. Section 201 of the Loan Interest and Protection Law, . . .

41 P.S. § 201, provides that the maximum lawful rate of annual interest for the loan or use of money in an amount of $50,000 or less is 6 per cent.

44. In fact, the interest Advance America charged under the line of credit product was much higher than an annual percentage rate of 5.98% because the "Monthly Participation Fee" was a sham, the true nature of which was illegal, usurious interest in violation of the maximum allowable annual interest rate under Section 201 of the Loan Interest and Protection Law, . . . 41 P.S. § 201. (emphasis added).

45. AA rendered substantial assistance to Advance America to establish loan centers and offer the line of credit product in the Commonwealth knowing that, through the line of credit product, Advance America was charging illegal, usurious interest in violation of the Loan Interest and Protection Law. (emphasis added). . . . .

COUNT III: VIOLATION OF THE CONSUMER PROTECTION LAW

(Attorney General v. All Defendants). . . .

49. Advance America's violation of the Consumer Discount Company Act, as found by the Commonwealth Court, as well as the violations of the Loan Interest and Protection Law, as set forth above, constitute per se violations of Section 2 of the Consumer Protection Law, 73 P.S. § 201-2. (emphasis added). . . . .

52. The above acts and practices constitute unfair methods of competition and unfair and deceptive acts and practices prohibited by Section 201-3 of the Consumer Protection Law*fn9 by, among other things (emphasis added):

(a) Causing likelihood of confusion or of misunderstanding as to the source, sponsorship, approval or certification of goods or services;

(b) Causing likelihood of confusion or of misunderstanding as to affiliation, connection or association with, or certification by, another;

(c) Representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits or quantities that they do not have or that a person has a sponsorship, approval, status, affiliation, or connection that he does not have; and,

(d) Engaging in other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding. (emphasis added). . . . .

56. Advance America and AA have benefited by Advance America's unfair methods of competition and unfair and deceptive acts and practices in the Commonwealth and have retained these benefits unjustly. (emphasis added).

COUNT IV: VIOLATIONS OF THE CONSUMER PROTECTION LAW

(Attorney General v. All Defendants). . . .

58. Defendants represented to consumers that the finance charge under the line of credit product was 5.98% when in fact the rate was much higher and was disguised as the $149.95 "Monthly Participation Fee" to hide the higher actual rate of interest. . . . .

61. Defendants have injured the economic health and well-being of the Commonwealth's citizens by illegally charging Pennsylvania consumers an interest rate in excess of that allowed under the Loan Interest and Protection Law and by disguising the actual interest rate as a "Monthly Participation Fee" of $149.50.

62. Advance America and AA have benefited financially, to the detriment of Pennsylvania consumers, by operating illegally in the Commonwealth and have retained these benefits unjustly. . . . .

65. The above acts and practices constitute unfair methods of competition and/or unfair and deceptive acts or practices prohibited by Section 201-3 of the Consumer Protection Law by, among other things (emphasis added):

(a) Causing likelihood of confusion or of misunderstanding as to the source, sponsorship, approval or certification of goods or services;

(b) Causing likelihood of confusion or of misunderstanding as to affiliation, connection or association with, or certification by, another;

(c) Representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits or quantities that they do not have or that a person has a sponsorship, approval, status, affiliation, or connection that he does not have;

(d) Representing that goods or services are of a particular standard, quality or grade, or that goods are of a particular style or model, if they are of another;

(e) Advertising goods and services with intent to sell them as advertised; and,

(f) Engaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding. (emphasis added).

73 P.S. §§ 201-2(4)(ii), (iii), (v), (vii), (ix) & (xxi).

63. [sic]*fn10 The above conduct on the part of Defendants is illegal and in violation of Section 201-3 of the Consumer Protection Law, 73 P.S. § 201-3. . . . (emphasis added).

Amended Complaint, December 16, 2008, Paragraphs 11, 15-19, 22-25, 28-31, 36, 38- 39, 42, 44-45, 49, 52, 56, 58, 61-62, and ...


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