Austin v. Alabama Check Cashers Ass'n, 1011907.

Decision Date18 November 2005
Docket Number1011907.,1011930.
Citation936 So.2d 1014
PartiesKaren AUSTIN et al. v. ALABAMA CHECK CASHERS ASSOCIATION et al. State Banking Department v. Alabama Check Cashers Association et al.
CourtAlabama Supreme Court

J. Michael Rediker and Michael C. Skotnicki of Haskell Slaughter Young & Rediker, LLC, Birmingham; Lange Clark, Birmingham; Joseph Espy III of Melton Espy Williams & Hayes, Montgomery; Daniel B. Banks, Jr., of Morris, Conchin, Banks & Cooper, Huntsville; Richard Fisher, Cleveland, Tennessee; and Jack L. Block of Sachnoff & Weaver, Ltd., Chicago, Illinois, for appellants Karen Austin et al.

William H. Pryor, Jr., and Troy King, attys. gen., and V. Lynne Windham, asst. atty. gen., and assoc. counsel, Alabama State Banking Department, for appellant State Banking Department.

Louis E. Braswell of Hand Arendall, L.L.C., Mobile, for appellee Speedee Cash of Alabama, Inc.

Paul A. Clark of Hill, Hill, Carter, Franco, Cole & Black, P.C., Montgomery, for appellee Sprague Enterprises, Inc.

Walter R. Byars and B. Saxon Main of Steiner, Crum & Baker, Montgomery, for appellees Alternative Financial Solutions, LLC, and Money Service Centers, LLC.

George W. Walker III and Shannon L. Holliday of Copeland, Franco, Screws & Gill, P.A., Montgomery, for appellee Express Check Services, Inc.

Steven P. Gregory of Dice & Gregory, L.L.C., Tuscaloosa, for amicus curiae Alabama Arise, in support of the appellants.

Russell Jackson Drake of Whatley Drake, L.L.C., Birmingham; and Deborah M. Zuckerman and Stacy J. Canan of AARP Foundation, Washington, D.C., for amici curiae AARP, National Consumer Law Center, and Consumer Federation of America in support of the appellant, State Banking Department.

Paul Chessin, asst. atty. gen., Colorado Attorney General's Office, Denver, Colorado, for amici curiae Attorneys General and National Association of Consumer Credit Administrators in support of the appellant State Banking Department.

A.H. Gaede, Jr., of Bradley Arant Rose & White, LLP, Birmingham, for amicus curiae Alabama Appleseed Center for Justice, Inc., in support of the appellant, State Banking Department.

J. Paul Compton, Jr., Laurence D. Vinson, Jr., Lesley Smith DeRamus, and Lisa B. Moss, of Bradley Arant Rose & White, LLP, Birmingham, for amicus curiae Alabama Consumer Finance Association, in support of the appellant, State Banking Department.

BOLIN, Justice.1

These consolidated appeals arise out of the State Banking Department's regulation of deferred-presentment transactions, more commonly referred to as "payday loans" because the maturity date of these short-term "loans" generally coincides with the borrower's next payday. The questions presented are whether the Alabama Small Loan Act, § 5-18-1 et seq., Ala. Code 1975, applies to deferred-presentment transactions, and, whether the trial court erred in holding that deferred-presentment transactions conducted in accordance with its consent order "shall be considered lawful."

On July 1, 1998, the supervisor of the Bureau of Loans at the State Banking Department began issuing cease and desist orders against businesses offering "loans" in the amount of $749 or less without a license. The orders were issued pursuant to the Alabama Small Loan Act. That same day, the Alabama Check Cashers Association ("ACCA"), along with individually named check cashers, instituted a declaratory-judgment action against the Banking Department and individually named employees of the Banking Department. In that action, the ACCA and the check cashers sought a judgment declaring that the Alabama Small Loan Act did not apply to the operations of the check cashers. The ACCA and the check cashers also sought a temporary injunction to prevent the Banking Department from enforcing the cease and desist orders.

The ACCA and the check cashers described their transactions in their complaint as follows:

"3. Plaintiffs generally perform two types of check-cashing transactions. The first type of transaction is a simple `check cashing' transaction whereby the Plaintiff businesses accept a customer's personal or third party check [and cash] it for a fee without any specific agreement with the customer to withhold depositing it for a particular period of time, although the deposit may be delayed for the businesses own purposes or convenience. The fee is typically based on a percentage of the face amount of the check and may depend on the nature of the check. This type of `check cashing' transaction is not believed to be at issue in this case.

"4. The second type of check cashing transaction is sometimes called a `deferred presentment' or a `delayed deposit' transaction. (Those terms are used interchangeably herein.) In ... such a transaction, the Plaintiff businesses cashes the customer's check for a fee but, for the convenience of the customer and at the customer's request (which may or may not also be for the businesses' own purposes and convenience), agrees to hold the check for a limited period of time before depositing it. Typically deposit may be delayed for a period of two weeks and only rarely would it be delayed longer than 30 days. By utilizing this service, the customer may avoid often multiple nonsufficient funds check charges and other `service' charges which are actually or implicitly agreed to by a customer in the event he or she does not have available funds to cash the check at the time it is written or deposited and returned. In addition, the customer avoids delays and credit checks and the pledge of collateral to borrow funds. There may or may not be a separate fee, in addition to a check cashing fee, for this delayed deposit.

"5. Among the different types of `deferred presentment' transactions are three broad categories which may be more particularly described as follows:

"Number 1 — The `Flat Fee' Scenario:

"Under the `Flat Fee' scenario, some businesses cash the customer's check but agree to delay deposit of the check until an agreed upon date for the customer's convenience. The fee charged for the transaction is the same fee as might be charged in a `check cashing' transaction, i.e., the customer pays a flat fee for the service irrespective of whether the deposit of the check is deferred to an agreed upon future date or not.

"Number 2 — The `Service Charge' Scenario:

"Under the `Service Charge' scenario, some businesses cash the customer's check but agree to delay deposit of the check until an agreed upon date for the customer's convenience. However, in addition to the `flat fee' which might be charged for a `check-cashing' transaction, the business also charges the customer an additional minimal service charge, e.g., $5.00 for delaying the deposit. This additional service charge usually does not vary over time or relate to the amount of the check; rather, it is a one-time service fee charged to cover additional administrative costs associated with such transactions.

"Number 3 — The `Catalogue Sales' Scenario:

"Under the `Catalogue Sales' scenario, some businesses are primarily engaged in catalogue sales, selling merchandise to a customer either directly from a catalogue or from the catalogue showroom floor. Customers can also purchase gift certificates from the provider for future redemption of items from the business' catalogue or catalogue showroom. If a customer either purchases merchandise from the catalogue or the showroom, the business will agree to cash a separate check and delay its deposit for the customer's convenience until an agreed upon date. No `additional' fee is charged for this check cashing service. Furthermore, the business does not charge deferral customers a higher price for the merchandise or gift certificates; rather, the customer pays the same price for the merchandise and gift certificates irrespective of whether he/she cashes a separate check in this manner.

"With some variation, one or more of the Plaintiffs engage in one or more of these general types of `deferred presentment' transactions, and it is with respect to these types of transactions that they seek declaratory judgments. Plaintiffs have been conducting these types of transactions for as many as five (5) years without being regulated by the State Banking Department."

On October 9, 1998, the trial court entered a consent order, encompassing an agreement between the ACCA and the check cashers, on the one hand, and the Banking Department, on the other. The order provided:

"Pursuant to successful mediation conducted between the parties on September 24, 1998, and upon agreement of the parties to a stipulated order for an Injunction,

"It is hereby ordered, adjudged and decreed by the Court that, during the pendency of this action, or until such final determination thereof, or until the effective date of any new legislation enacted by the Alabama Legislature regulating deferred presentment services, Plaintiffs, their officers, agents, servants, and employees shall conform their deferred check presentment transactions as follows:

"1. On or before November 3, 1998, the Alabama Check Cashers Association shall pay to the Banking Department of the State of Alabama a non-refundable, non-prorated sum of $500.00 per Plaintiff location in lieu of any licensing fee. This fee shall be valid until final determination of this action.

"2. Plaintiffs who desire to enter into the pawn broking business during the pendency of this action must pay an additional licensing fee of $500.00.

"3. Plaintiffs who also conduct other licensed activities, e.g., pawn broker or title pawn transactions, shall maintain separate business and financial records for each activity — one set of records for deferred presentment transactions and additional separate records for other licensed activities.

"4. Plaintiffs shall not renew or otherwise consolidate a deferred presentment transaction with the proceeds of another deferred...

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