Midwest Check Cashing, Inc. v. Richey

• Decision Date: 05 March 2007
• Docket Number: No. 04-1653.,04-1653.
• Citation: 728 N.W.2d 396
• Parties: MIDWEST CHECK CASHING, INC., d/b/a EZ Money Check Cashing, Appellee, v. Erin E. RICHEY, Appellant.
• Court: Iowa Supreme Court

728 N.W.2d 396

MIDWEST CHECK CASHING, INC., d/b/a EZ Money Check Cashing, Appellee, v. Erin E. RICHEY, Appellant.

No. 04-1653.

Supreme Court of Iowa.

March 5, 2007.

Carlton G. Salmons and Tom W. George of Gaudineer, Comito & George, West Des Moines, for appellant.

Hugh J. Cain of Hopkins and Huebner, P.C., Des Moines, for appellee.

CADY, Justice.

In this discretionary review from a decision by the district court that affirmed a judgment entered by a magistrate in an action by a delayed deposit services business to collect a "payday" loan, we must determine if the applicable statutory requirements were followed in the case and whether the "payday" loan statute is constitutional. On our review, we affirm the judgment of the district court.

I. Background Facts and Proceedings.

Erin E. Richey (Richey) obtained a $400 loan from Midwest Check Cashing, Inc. (Midwest) in March of 2002. Midwest is a business engaged in delayed deposit services, which provides customers with what is commonly known as "payday" loans. Midwest is licensed to operate the business by the State superintendent of banking. Richey had obtained similar loans in the past from Midwest when she resided at 1228 East 13th Street in Des Moines. At the time of this transaction in March 2002, however, Richey resided at 712 13th Street in West Des Moines.

As a previous customer, Richey was familiar with the "payday" loan process. Under this process, the customer gives a postdated personal check made payable to the business engaged in delayed deposit services in return for the receipt of cash. The amount of the check is greater than the amount of cash the customer immediately receives from the company. The difference in the two amounts represents the transactional fee charged by the company for giving the customer the cash in advance of negotiating the check. In this case, Richey made a check payable to Midwest for $450, postdated it two weeks into the future, and immediately received $400 from Midwest. Midwest, of course, agreed to wait two weeks before cashing the check. At this time, Richey would presumably have enough money in her account to honor the check. The "payday" loan allows a customer with a checking account to obtain money by writing a check without adequate funds in the checking account at the time the check is written.

The check given to Midwest by Richey accurately reflected the address of her current West Des Moines residence. However, Richey also signed a disclosure agreement as a part of the transaction. The agreement disclosed Midwest loaned Richey $400 and imposed a $50 fee for the transaction. It also disclosed this $50 fee represented the equivalent of a 325.89% annual percentage rate (APR) on the $400 loan over two weeks. Finally, the agreement erroneously indicated Richey's current address as her former Des Moines residence, but included an acknowledgement that "all statements made in this agreement are true, complete, and correct." Nevertheless, Richey signed the agreement.

Midwest negotiated Richey's check two weeks after the transaction by depositing it in its bank account. The check was not paid because of insufficient funds in Richey's checking account. As a result, Midwest sent Richey a letter of notice to cure default. The letter was sent to her previous Des Moines address shown on the disclosure agreement.

Midwest brought a small claims action to collect the debt after Richey failed to respond to the notice to cure. Richey eventually filed an answer and counterclaim in the action. The counterclaim sought damages and attorney fees based in part on Richey's claim that she did not receive the notice to cure mailed by Midwest.

At the small claims hearing, a representative from Midwest explained the procedure followed by the company in a "payday" loan transaction. In particular, she testified if a check given by a customer shows an address of the customer different from the address in its computer records, then the customer is asked if the address in its records is correct. If the address is not correct, the computer records are then changed to reflect the correct address. In this way, the office records are relied upon by the business to reflect the customer's correct information.

Midwest called Richey as a witness. She testified on direct examination that Midwest never asked her to verify her current address during the transaction. Richey then contradicted herself on cross-examination when she recalled that Midwest did indeed ask her if the address on the check was correct. Yet, on redirect examination, Richey again testified that Midwest never asked about her current address.

Richey further testified she never received the notice to cure, and had no other contact with Midwest regarding the transaction. Richey testified she believed the check she gave to Midwest had been paid.¹

The small claims court ruled in favor of Midwest and against Richey on her counterclaim. It found Richey failed to provide her correct address to Midwest. Richey appealed to the district court. She claimed the transaction was governed by the Iowa Consumer Credit Code (ICCC), not the Delayed Deposit Services Licensing Act (DDSLA). Richey challenged the constitutionality of the DDSLA, and further challenged the validity of the notice to cure given by Midwest.

The district court affirmed the judgment. It found the ICCC did not override the more specific provisions of the DDSLA, and as a result the DDSLA governed Richey's transaction. It further found Richey's constitutional challenges to the DDSLA were without merit because Richey could not prove the requisite state action in order to succeed. In addition, the district court noted Richey could not show dissimilar treatment of similarly situated individuals, and even if these prerequisites could be met, the DDSLA was rationally related to the government's interest. Finally, the district court found Richey provided Midwest with an incorrect address by signing the disclosure statement.

Subsequently, Richey applied for discretionary review to the Iowa Supreme Court pursuant to Iowa Code section 631.16 (2005). See Iowa R.App. P. 6.201 (stating the requirements for an application for discretionary review). We granted her application.

II. Issues.

On appeal, Richey makes two basic arguments. First, the ICCC governs her transaction and the transaction failed to satisfy the ICCC's requirements. Second, if the DDSLA governed her transaction, section 533D.9 of the DDSLA is unconstitutional.

III. Standard of Review.

"On discretionary review of a small claims action, our standard of review depends on the nature of the case. If the action is a law case, we review the district judge's ruling on error." Hyde v. Anania, 578 N.W.2d 647, 648 (Iowa 1998) (citation omitted). The parties agree Richey's statutory arguments must be reviewed on assigned errors. See City of Ames v. Regency Builders, Inc., 653 N.W.2d 553, 555 (Iowa 2002) (reviewing at law and noting the parties agree). The parties also agree Richey's constitutional arguments must be reviewed de novo. See Simonson v. Iowa State Univ., 603 N.W.2d 557, 561 (Iowa 1999) ("Our review of a district court's judicial review ruling is ordinarily for correction of errors at law. When constitutional issues are raised, however, we must make an independent evaluation of the totality of the evidence and our review in such cases is de novo." (Citation omitted.)).

IV. Application of the ICCC to "Payday" Loans.

Richey claims the "payday" loan transaction is governed by the ICCC, and the transaction violated the ICCC in three ways. First, she argues Midwest failed to comply with the notice to cure provisions under the ICCC. Next, Richey argues the disclosure agreement inaccurately stated the interest rate, or at least was deceptive and misleading in stating the interest rate, under the provisions of the ICCC. Last, Richey argues the interest charged is unconscionable and violates the limitations imposed by the ICCC. Thus, we must first decide if the ICCC applies to "payday" loan transactions.

"Payday" loans are specifically governed by the "Delayed Deposit Services Licensing Act." The Iowa legislature enacted the statute in 1995. 1995 Iowa Acts ch. 139, §§ 1-16 (codified as amended in Iowa Code §§ 533D.1-.16 (2007)). The DDSLA specifically applies to licensed delayed deposit service businesses, or "payday" loan companies, and explicitly excludes transactions involving banks, savings and loan associations, credit unions, industrial loan companies licensed under chapter 536A, and any affiliate of these financial organizations. Iowa Code § 533D.16 (recognizing organizations not regulated by chapter 533D). The provisions of the DDSLA clearly governed the transaction between Midwest and Richey in this case.

On the other hand, consumer credit transactions in Iowa have long been governed by the ICCC. The ICCC predates the DDSLA, and governs all consumer credit transactions in Iowa not specifically excluded under the statute. The ICCC specifically applies to "acts, practices or conduct in this state in the solicitation, inducement, negotiation, collection, or enforcement of a transaction, without regard to where it is entered into or modified." Id. § 537.1201(1)(c). The transaction between Midwest and Richey satisfies this definition. Additionally, the express exclusions under the statute do not include delayed deposit services. See id. § 537.1202 (indicating what chapter 537 does not apply to). Under the ICCC, a "payday" loan would normally satisfy the definition of a "consumer loan." See id. § 537.1301(14). Consequently, it is clear the ICCC applies to "payday" loans to the extent the statute does not conflict with the specific provisions of the DDSLA. The ICCC provides that "no part of [the ICCC] shall be deemed to be impliedly repealed by subsequent legislation if such a construction can be reasonably avoided." Id. § 537.1104 (Emphasis added.) The DDSLA...