Tuesday, March 02, 2010

consumer - Debt Management Services Act - constitutionality

US Organizations for Bankruptcy Alternatives v. Dept. of Banking - Cmwlth. Court - February 25, 2010 (2-1 decision)


A 3-judge panel of the Commonwealth Court held that sections of the Debt Management Services Act, Act of October 9, 2008, P.L. 1421, 63 P.S. §§ 2401 – 2449 were facially unconstitutional. The DMSA (Act 117), grants the Department of Banking broad powers to regulate both debt settlement services (DSS) Providers and providers of debt management services (DMS Providers).

Regulation of conduct
Because we have held, Association of Settlement Companies v. Department of Banking, 977 A.2d 1257, 1262-63 (Pa. Cmwlth. 2009), that the Department lacks the authority to promulgate regulations affecting DSS Providers, we must declare the Section 3(b) requirement that DSS Providers operate “in accordance with regulations promulgated by the department regarding the conduct of debt settlement services,” 63 P.S. § 2403(b), unconstitutional and unenforceable.

Regulation of fees
Similarly, in Association of Settlement Companies, this Court held that Act 117, Section 15(h) of Act 117, 63 P.S. § 2415(h), provided no standards or restraints on its grant of authority to the Department to set and regulate the fees that DSS Providers may charge. Id., 977 A.2d at 1269- 70.

However, with regard to the licensing of DSS Providers, i“Act 117 contains adequate policy choices with regard to the licensing of DSS Providers and contains sufficient standards to guide and restrain the Department in carrying out these policy choices.” Id., 977 A.2d at 1265. Therefore, we do not have, at this stage in the litigation, any basis upon which to declare the remainder of Act 117 unconstitutional. We, therefore, grant USOBA’s Application only in part, as discussed above, and deny it in part.