Wednesday, August 01, 2007

consumer - payday lending - license - Consumer Discount Company Law

Department of Banking v. NCAS of Delaware - Commonwealth Court - July 31, 2007

In this original jurisdiction case, the court determined that Advance America, a payday lender, was subject to the licensing requirements of the state Consumer Discount Company Act, 73 PS 6201 et seq., since the effective interest rate in its transactions was much higher than the statutory limit of 6% . The court grant the Department's motion for judgment on the pleadings on this claim.

Although the stated contract interest rate was 5.98% - just below the 6% limit prescribed by the CDCA - AA also charged consumers $149.95 per month as a "participation fee", which the court said was a charge under the statute that had to be include in the aggregate charges and thus was part of the interest rate deterimination, because the participation fee was a "necessary condition" of any credit advance by AA and was a "charge inextricably related to the amount actually loaned or advanced." By including the participation fee, the aggregate interest rate was about 368%, "far in excess of" the 6% interest that an unlicensed lender is permitted to charge.

The court held that the factual record was not sufficient to determine the Act 6 question - whether the monthly participation fee should be considered sham interest which, when combined iwth the stated interest rate of 5.98%, established a violation of 41 PS 201.

The court also held Pennsylvania law applied to the case, since it was brought by the state Department of Banking for violation of state banking laws, and thus was not governed by the terms of contracts between AA and individual consumers, which specified that Delaware law applied.