Appeal from the Order of the Commonwealth Court at No. 8 MD 2009, entered on July 10, 2009 978 A.2d 1028.
The opinion of the court was delivered by: Mr. Justice Baer
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, ORIE MELVIN, JJ.
The issues before us involve the authority of the Department of Banking (Department) to apply Section 3.A of the Consumer Discount Company Act,*fn1 7 P.S. § 6203.A, to lenders without offices or personnel in Pennsylvania. Based on the plain language of the statute, we hold that Section 3.A makes it unlawful for any unlicensed lender to make the specified types of loans in this Commonwealth, regardless of whether the lender is physically located or has personnel in the Commonwealth. We therefore affirm the Commonwealth Court.
Appellant Cash America Net of Nevada, LLC (Cash America), is a Delaware limited liability company qualified to do business in Nevada and licensed by the Nevada Division of Financial Institutions, with no offices or employees in Pennsylvania, engaged in the business of making short-term "pay-day" loans to Pennsylvania residents over the Internet. Payday lending is a consumer lending practice in which a lender offers consumers high-rate, short-term loans secured by either a post-dated check or a debit authorization from a bank. These post-dated checks or debit authorizations become payable to the lender at the end of the loan term, usually set at two weeks to coincide with the borrower's payday. Pa. Dep't of Banking v. NCAS of Del., LLC, 948 A.2d 752, 754 (Pa. 2008). The Department characterizes such loans as a predatory lending practice.
Cash America's Pennsylvania borrowers constitute one of its critical market segments. Indeed, Cash America earned approximately $10 million annually by making payday loans over the Internet to Pennsylvania residents in amounts of the lesser of 25% of the borrower's gross monthly income or $750. Cash America assesses a finance charge of 25% of the amount borrowed. The annual percentage rate (APR) of the loans offered by Cash America are as follows: for an eight day term, 1140.63%; for a fourteen day term, 651.79%; for a thirty-five day term, 260.71%. Cash America has not obtained a license from the Department for its lending to Pennsylvania residents. If Cash America were licensed, it would not be permitted under Pennsylvania law to charge residents such high interest rates.
The powers and responsibilities of the variety of lenders present in the marketplace are defined in a sophisticated statutory scheme. We are concerned here only with a nondepository, nonmortgage, consumer lender of amounts less than $25,000. Such lenders are regulated by the Loan Interest and Protection Law (LIPL), 41 P.S. §§ 101-605, and the CDCA, 7 P.S. §§ 6201-6219. Accordingly, our discussion of lenders encompasses only those lenders within the reach of the LIPL and the CDCA. Read together, the LIPL and the CDCA limit the amount of interest lenders may charge on loans under $25,000.
Specifically, Section 201 of the LIPL generally caps interest rates on loans less than $50,000 at 6% as follows:
Except as provided in Article III of this act, the maximum lawful rate of interest for the loan or use of money in an amount of fifty thousand dollars ($50,000) or less in all cases where no express contract shall have been made for a less rate shall be six per cent per annum.
The CDCA, which was originally enacted in 1937, defines "person" as including "an individual, partnership, association, business corporation, nonprofit corporation, common law trust, joint-stock company or any other group of individuals however organized." 7 P.S. § 6202. Section 3.A of the CDCA, 7 P.S. § 6203.A, bars "persons" from making loans under $25,000 and charging in excess of the lawful interest rate, unless that person is licensed in accord with the act:
[N]o person shall 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 . . . . 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 . . . except a domestic business corporation organized under or existing by virtue of the Business Corporation Law of this Commonwealth, after first obtaining a license from the Secretary of Banking of the Commonwealth of Pennsylvania in accordance with the provisions of this act.
7 P.S. § 6203.A. A person licensed pursuant to the CDCA is authorized to make loans of $25,000 or less under the rates, terms, and conditions contained in the CDCA, which can be up to approximately 24%. 7 P.S. § 6213.E and 6217.1.A.
Within the context of this case, the effect of these two statutes is that if a lender is licensed by the Department in accord with the CDCA, it can charge between 6 - 24% on loans under $25,000. If it is not licensed, it is bound by the 6% cap imposed by the LIPL. The issue presented herein is how Cash America, which is not licensed under the CDCA and does not wish to be licensed, fits into this scheme. Cash America argues that it is exempt because it operates outside without personnel in Pennsylvania.
The Secretary of Banking (Secretary) and the Department had, until recently, agreed with Cash America. Until July 26, 2008, the Department did not impose the LIPL's general 6% interest rate or the CDCA to out-of-state lenders. Before then, the Department had interpreted the phrase "in this Commonwealth" in Section 3.A of the CDCA not to apply to entities without any offices or employees physically present in the Commonwealth, such as Cash America. Under the prior interpretation, articulated in a series of interpretive letters, such an entity would not be required to obtain a license under the CDCA to originate consumer loans by means of the Internet or mail to residents of the Commonwealth with charges exceeding 6% simple interest per annum, provided that the entity was licensed or otherwise authorized under its home state law to engage in this type of lending activity. With the rise of Internet-based lending activity, however, it became clear to the Department that its prior position had "resulted in Pennsylvania consumers being exposed to the very lending practices that the CDCA was enacted to protect them from," i.e., lending at high interest rates by non-licensed entities. 38 Pa. Bull. 3986, 3987 (July 26, 2008). The Department determined that its prior interpretation of "in this Commonwealth" within Section 3.A of the CDCA was not compelled as a matter of statutory interpretation or legislative intent. Consequently, the Department revised its interpretation of Section 3.A of the CDCA.
On July 26, 2008, the Department published this policy change in the Pennsylvania Bulletin in a "Notice to those Engaging or Considering Engaging in Nonmortgage Consumer Lending to Pennsylvania Residents," 38 Pa.Bull. 3986 (July 26, 2008) (Notice), indicating its intent to provide Pennsylvania consumers with the protections of the CDCA, regardless of whether the lender or its employees are located in Pennsylvania. The Department announced "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 [CDCA]." Id.
Under this interpretation, the Department would require licensing under the CDCA for entities engaged in consumer lending to Pennsylvania residents in amounts below $25,000 in which the charges exceed 6% simple interest per annum. The Notice further provided that a person licensed under the CDCA is permitted to negotiate or make loans to Pennsylvania residents under the rates, terms and conditions contained in the CDCA. Id. Finally, the Notice advised that entities engaged in consumer lending to Pennsylvania residents in which the charges exceed 6% simple interest per annum (such as Cash America) must be licensed under the CDCA by February 1, 2009, or cease lending to Pennsylvania residents. Id. at 3987.
According to Cash America, payday lending is not economically viable under the interest rate restrictions of the CDCA. Cash America therefore decided to forego either limiting its interest rate to the 6% imposed by the LIPL or attempting to obtain a license in accord with the CDCA. Instead, it filed a petition for review in the nature of a complaint in equity against the Department and the Secretary (Appellees) in the Commonwealth Court on January 8, 2009, seeking declaratory and injunctive relief. It sought to have the Notice declared unlawful and to enjoin Appellees from implementing or enforcing it. It averred that it is a limited liability company existing under the laws of Delaware and qualified to do business in Nevada; it has no personnel or office physically located in Pennsylvania; and licensure under the CDCA was not possible for Cash America because Pennsylvania law requires that a licensed lender be a Pennsylvania business corporation. See 7 P.S. § 6203.A; 7 P.S. § 6207 ("A license under the provisions of this act shall be issued only to a corporation organized under the Business Corporation Law of the Commonwealth of Pennsylvania.").
In its petition, Cash America requested a declaration that an out-of-state company without an office or employee physically present in Pennsylvania acting as "principal, employe, agent or broker" (collectively referred to here as "personnel") is not engaged in business "in this Commonwealth" as the phrase is used in Section 3.A; that, accordingly, implementation and enforcement of the Notice violated the plain language of the CDCA; and that, for these reasons, the Department should be enjoined from applying the Notice to out-of-state lenders without personnel in Pennsylvania. Additionally, Cash America sought a declaration that the implementation and enforcement of the Notice constituted unpromulgated rulemaking in violation of Pennsylvania law, entitling Cash America to an injunction against enforcement until the Department complied with requirements for promulgating a new regulation. Finally, Cash America requested a declaration that implementation of the Notice would render the CDCA inconsistent with the Commerce Clause of the United States Constitution and therefore unconstitutional.*fn2
The Department filed an answer and a counterclaim for declaratory judgment. It denied that licensure was not an option for Cash America and explained in a new matter that the Department interprets the laws of the Commonwealth to allow it to grant licensure to lenders regardless of whether they are a Pennsylvania business corporation with its principal place of business in Pennsylvania, as long as the lender is a company qualified to do business in Pennsylvania and has a registered agent in the Commonwealth. In its counterclaim, the Department asserted that because Cash America was not licensed under the CDCA, it was prohibited from charging interest and fees that aggregate in excess of 6%, pursuant to Section 201 of the LIPL, 41 P.S. § 201, and that its lending practices violated both the LIPL and the CDCA. The Department requested a ...