Barry Service Agency Co. v. Manning, WD

• Decision Date: 07 February 1995
• Docket Number: No. WD,WD
• Parties: BARRY SERVICE AGENCY COMPANY, et al., Appellants, v. Earl L. MANNING, Commissioner of Finance, Respondent. 48920.
• Court: Missouri Court of Appeals

Page 882

891 S.W.2d 882

BARRY SERVICE AGENCY COMPANY, et al., Appellants, v. Earl L. MANNING, Commissioner of Finance, Respondent.

No. WD 48920.

Missouri Court of Appeals,

Western District.

Feb. 7, 1995.

Ted L. Perryman, St. Louis, for appellants.

Jeremiah W. (Jay) Nixon, Atty. Gen., Anne E. Schneider, Asst. Atty. Gen., Jefferson City, for respondent.

Before SPINDEN, P.J., and LOWENSTEIN and ELLIS, JJ.

ELLIS, Judge.

This is a case of first impression involving § 408.500, RSMo Supp.1993, ¹ a statute regulating the interest rates and fees charged by Missouri lenders exclusively engaged in the business of making unsecured loans under $500 (hereafter referred to as "section 500 loans"). Appellants, who are eight registered section 500 lenders, ² challenge a final judgment of the Circuit Court of Cole County denying them injunctive and declaratory relief from a state agency decision rendered without a hearing or other form of administrative review. Respondent (hereafter referred to as "the Director") is the Commissioner of Finance for the State of Missouri and serves as the Director of the Missouri Department of Economic Development's Division of Finance ("the Division"), an administrative agency responsible for licensing and regulating financial institutions and other types of consumer credit lenders operating within the state. We reverse the decision of the trial court and remand with directions.

Section 408.500 was enacted in July, 1990 and became effective on January 1, 1991. See House Bill No. 961, Laws of Mo.1990, pp. 1064-65. Prior to this statute, makers of unsecured small loans under $500 essentially had two options: charging the borrower a maximum interest rate of 2.218% per month on the unpaid principal balance under § 408.100(1), RSMo 1986, ³ or charging a flat $10 fee "[i]n lieu of" interest under § 408.031, RSMo 1986.

However, § 408.500 dramatically changed the legal landscape for lenders "exclusively in the business of making unsecured loans under five hundred dollars and who are not otherwise registered under chapter 408, RSMo." § 408.500.1. To begin with, it requires such lenders to register with the Director and pay a $300 annual registration fee. Id. More importantly, § 408.500 replaced the previous unsecured small loan system, which fixed the maximum interest rates and fees chargeable on such loans by statute, with a new approach:

Lenders shall file a rate schedule with the director who, upon review, shall approve rates comparable with those lawfully charged in the marketplace for similar loans. In determining marketplace interest rates, the director shall consider the appropriateness of rate requests made by lenders and rates allowed on similar loans in the states contiguous to Missouri. If the director takes no action upon a filed rate schedule within thirty days of receipt, then it shall be deemed approved as filed. The director, on January first and July first of each year, shall consider the filing of new interest rate schedules to reflect changes in the marketplace.

Id. The remainder of § 408.500.1 prohibits makers of unsecured loans under $500 from charging, contracting for, or receiving interest payments or other fees in excess of this "approved rate" and gives the Director authority to promulgate rules regarding such loans, while § 408.500.2 voids any contract "evidencing any fee or charge" in excess of that rate. Section 408.500.2 also makes the reception or imposition of any such excessive fee or charge a class A misdemeanor.

Shortly after § 408.500 was passed, the Division contacted regulators in each of the eight states contiguous to Missouri (namely, Arkansas, Kentucky, Iowa, Nebraska, Kansas, Tennessee, Oklahoma and Illinois) in an effort to obtain useful information about the rates allowed on unsecured loans under $500 in those states. When the data collection process was completed, various memoranda and spreadsheets containing the data were prepared and Division employees held several meetings with the Director to discuss and consider the information obtained.

The Division subsequently decided it would promulgate several emergency rules relating to section 500 loans and lenders. In late October, 1990, the Division sent preliminary drafts of these regulations to existing small lenders and solicited written comments concerning them. In a November 9, 1990 letter, appellants made several comments and attached copies of the rate schedules used by their affiliates in Oklahoma as examples of relevant "marketplace" rates. On December 11, 1990, just three weeks before § 408.500 was to go into effect, the Division formally promulgated three emergency rules, each with an effective date of January 1, 1991 and an expiration date of April 30, 1991. See 16 Missouri Register 7-9 (Jan. 2, 1991); § 536.025.4 (an emergency rule may only remain in effect for a maximum of 120 days). In particular, the Division promulgated Emergency Rule 4 CSR 140-11.030 (titled "Small, Small Loan Companies--Rates and Other General Provisions") at that time. 16 Missouri Register at 8-9. In the same issue of the Missouri Register, the Division also proposed a rule identical to Emergency Rule 4 CSR 140-11.030 on a "normal," non-emergency basis and sought public comments about it. Id. at 9, 22-23. ⁴

Emergency Rule 4 CSR 140-11.030 contained a preamble labeled "PURPOSE" in which the Division declared its belief that:

The commissioner of finance is required by section 408.500, RSMo to establish rates and other terms for small, small loan companies (hereafter known as section 500 companies). The purpose of this rule is to set those rates and other general terms.

Id. at 8. The body of Emergency Rule 4 CSR 140-11.030(1) stated, in pertinent part, as follows:

(1) Maximum Rates. The maximum rate permissible on a loan made by a section 500 company shall be five percent (5%) of the amount financed per month. In addition to the five percent (5%) per month, ... a nonrefundable fee not to exceed ten dollars ($10) may be contracted for and collected on every section 500 company loan.

Id. at 9. Moreover, Emergency Rule 4 CSR 140-11.030(6) provided that rule violations were to be regarded as violations of § 408.500 and that violators would be "subject to the same penalties as provided in that section." Id.

On December 26, 1990, appellants submitted applications for certificates of registration as section 500 lenders, tendered checks for the $300 registration fee, and filed proposed rate schedules with the Director. The proposed schedules, which were used by their affiliates in Oklahoma, were copies of a rate chart published by the Oklahoma Department of Consumer Credit to determine maximum allowable interest rates and fees on unsecured loans under $500 as permitted by Okla.Stat. tit. 14A, § 3-508B (1990). The Director denied the rate requests on December 31, 1990, explaining that the rates sought were in excess of the maximum rate established in Emergency Rule 4 CSR 140-11.030(1) and warning appellants that the Division intended to enforce that limitation. He did, however, accept the checks and issue the requested certificates of registration.

On January 8, 1991, appellants challenged the validity of Emergency Rule 4 CSR 140-11.030(1) by filing an action for declaratory judgment in the Circuit Court of the City of St. Louis styled William Gordon Company v. Earl L. Manning, case number 914-00003. While this suit was pending, appellants filed another set of proposed rate schedules based in large part on the Oklahoma rate charts submitted earlier. The Director determined that these schedules were "unacceptable" as well. After discovery and a hearing, on March 1, 1991, Circuit Judge Edward M. Peek ruled that since "[t]he language of Section 408.500 does not grant the Director of the Division of Finance, either expressly or by implication, the authority to set or establish" a maximum interest rate for unsecured small loans under $500, the Director exceeded his rulemaking powers when he promulgated Emergency Rule 4 CSR 140-11.030(1) and it was invalid. ⁵

On April 4, 1991, appellants filed yet another set of proposed rate schedules based on the Oklahoma rate charts. This time, the rates were disapproved because the Director found they were "far higher than those found in the market as prescribed by Section 408.500 RSMo Supp. (1990)." Appellants then filed the action which is the subject of this appeal.

Judicial review of noncontested administrative decisions such as those made by the Director in this case ⁶ is governed by § 536.150, RSMo 1986. State ex rel. Rice v. Bishop, 858 S.W.2d 732, 734 (Mo.App.1993). In these cases, the circuit court does not use the competent and substantial evidence test employed in reviewing contested agency decisions. Phipps v. School Dist. of Kansas City, 645 S.W.2d 91, 94-95 (Mo.App.1982); Bishop, 858 S.W.2d at 736. Rather, it conducts a broader de novo review in which it hears evidence on the merits of the case, makes a record, determines the facts and decides whether, in view of those facts, the agency's decision is unconstitutional, unlawful, unreasonable, arbitrary, capricious, or otherwise involves an abuse of discretion. Phipps, 645 S.W.2d at 95-96; Karzin v. Collett, 562 S.W.2d 397, 399 (Mo.App.1978); § 536.150.1. The circuit court owes no deference to facts found or credibility assessed by the agency and, likewise, need not conform doubtful evidence to the administrative decision. Phipps, 645 S.W.2d at 95, 96.

On appeal, we review the judgment of the circuit court, not the decision of the administrative agency. Id. at 100. Because we review its judgment essentially as we do other judgments declared in a case tried to the court without a jury, the scope of our review is governed by Rule 73.01 as construed in Murphy v. Carron, 536 S.W.2d 30 (Mo. banc 1976). Bishop, 858 S.W.2d at 737; Citizens for Safe Waste Management, 810 S.W.2d at 641. Accordingly, we review the circuit court's...