DEPT. OF BANKING v. NCAS OF DELAWARE

• Decision Date: 28 April 2010
• Docket Number: No. 519 M.D. 2006,519 M.D. 2006
• Citation: 995 A.2d 422
• Parties: 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.
• Court: Pennsylvania Commonwealth Court

995 A.2d 422

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.

No. 519 M.D. 2006

Commonwealth Court of Pennsylvania.

Argued November 5, 2009.

Decided April 28, 2010.

COPYRIGHT MATERIAL OMITTED

John M. Abel, Sr. Deputy Attorney General, Harrisburg and Robert L. Byer, Pittsburgh, for plaintiffs.

David H. Pittinsky, Philadelphia, for defendants.

BEFORE: LEADBETTER, President Judge, McGINLEY, Judge, PELLEGRINI, Judge, COHN JUBELIRER, Judge, SIMPSON, Judge, LEAVITT, Judge, and BUTLER, Judge.

OPINION BY Judge McGINLEY.

Presently before this Court are the preliminary objections (P.O.s) of NCAS of Delaware, LLC (NCAS)¹, Advance America Cash Advance Centers (Advance America)², and Advance America Cash Advance Centers, Inc (AA)³ (collectively, Defendants) to the amended complaint filed by the Department and the Attorney General (collectively, Plaintiffs).⁴

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)⁵ and the Loan Interest and Protection Law (LIPL).⁶

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.⁷ (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 Act⁸ ... 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 vs. 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. (

...