Maryland Commissioner of Financial Regulation v. Cashcall, Inc.

³¹⁶ KRAUSER, C.J. This appeal requires that we delve into the question of what constitutes a “credit services business” under the Maryland Credit Services Business Act (“MCSBA”). 1 This issue arose when, prompted by consumer complaints, the Maryland Commissioner of Financial Regulation, 2 appellant, conducted an investigation into the business activities of CashCall, Inc., a California corporation, and its president and sole share-holder, John Paul Reddam, appellees. The Commissioner found that CashCall had arranged, from 2006 to 2010, more than 5,000 loans for Maryland consumers, loans which were issued by two federally insured out-of-state banks, at interest rates significantly greater than the rates permitted by Maryland law. Then, three days after the issuance of each and every loan, CashCall, pursuant to an agreement it had with each of the two out-of-state banks, promptly purchased the loan from the issuing bank and thereafter collected all payments, interest, and fees due on that loan from the borrowing Maryland consumer. Concluding that CashCall and Reddam had engaged in the “credit services business” without a license to do so and without complying with any of Maryland’s remedial statutes governing such enterprises, the Commissioner ordered appellees to cease and desist from such activities and imposed upon them a civil penalty for each of the more than 5,000 loans they had arranged for interested Maryland consumers.

Vigorously disagreeing with the Commissioner’s assessment of its business activities in Maryland, CashCall petitioned the Circuit Court for Baltimore City for judicial review. Before that court, as it did before the Commissioner, CashCall insisted that, at no time, during its marketing, facilitation, and ³¹⁷ ultimate acquisition of the loans it arranged, was it acting as a “credit services business,” as defined by the MCSBA, because it never received any compensation “directly” from a Maryland consumer for its services and, therefore, under extant Maryland caselaw, did not qualify as such a business. The Baltimore City circuit court agreed and reversed the Commissioner’s order, prompting the Commissioner to note this appeal. Because we believe that the Commissioner was correct in concluding that CashCall was a “credit services business,” under the MCSBA, we shall reverse the decision of the circuit court and remand for that court to affirm the Commissioner’s decision in this matter.

I. CashCall, a California corporation, and its president and sole share-holder, John Paul Reddam, were engaged in the business of marketing small loans, through a range of media outlets, to Maryland consumers. The loans were to be issued, at interest rates significantly greater than those permitted by Maryland law, by two federally insured out-of-state banks: First Bank & Trust, a South Dakota-chartered state bank; and First Bank of Delaware, a chartered bank of that state. Three types of loans were offered by CashCall to interested Marylanders: a loan of $5,025 at an annual interest rate of 59%; a loan of $2,600 at an annual interest rate of 96%; and a loan of $1,025 at an annual interest rate of 89%. From January of 2006 through the end of 2010, CashCall arranged 5,651 such loans for Maryland consumers.

CashCall’s advertisements directed interested Maryland consumers to its website where they could obtain a loan application and instructions on how to complete that form. They also provided a telephone number that consumers could call to obtain assistance in filling out the website’s loan application. And, once a loan application was completed by an interested Maryland consumer, CashCall would forward that ³¹⁸ application to one of the two federally insured out-of-state banks for approval. Once the application was approved by one of the two banks, that bank would disburse the loan to the consumer, though subtracted from the amount of the loan was an “origination fee,” that is, “a fee charged by a lender for preparing and processing a loan.” 3 Illustratively, for an approved loan of $2,600, the Maryland consumer received only $2,525 from the bank, that is, the loan amount less a $75 origination fee.

The consumer was then to pay the bank, or whomever thereafter held the loan, $2,600, the origination fee having been rolled into the loan amount, plus interest. Thus, the consumer ultimately paid the origination fee as he or she repaid the loan in monthly installments to whomever held the loan. After the loan was made, CashCall, under the contract it had entered into with each of the two out-of-state banks, would promptly purchase the loan from the issuing bank. Although its initial contracts with the two banks required CashCall to purchase the loan “on the same business day” that the loan was issued, those agreements were later amended to grant CashCall three days to purchase the loan after it was disbursed to the consumer.

The purchase price for each loan, as noted, was the amount of the loan actually received by the consumer plus the origination fee. Thus, for the $2,600 consumer loan described earlier, CashCall would purchase the loan from the bank for $2,600—that figure comprised the $2,525 actually loaned to the consumer plus the $75 “origination fee” to be paid by the consumer. 4 The banks, in turn, paid CashCall a “royalty fee” of between $5.00 and $72.22 per loan, depending on the amount of the loan and which of the two out-of-state banks had made the loan. ³¹⁹ Upon purchasing a loan, CashCall acquired the right to enforce the loan’s terms and to collect the payments that were to be made by the borrowing consumer under the terms of the loan, including all interest, penalties, and fees. Indeed, if a consumer mistakenly sent a loan payment to the bank, rather than to CashCall, after CashCall had purchased the loan, the bank was, pursuant to its contract with CashCall, obligated to “promptly” forward that payment to CashCall. Thus a Maryland consumer, who used CashCall to obtain such a loan, never paid any loan payments or, for that matter, any fees or other payments of any nature, to the out-of-state bank that initially issued the loan, but, instead, made all such payments directly to CashCall.

That meant, in making loan payments to CashCall, the consumer paid CashCall the origination fee, which had been “rolled into” the amount of the loan, a fact that will play a role in our pending analysis of whether CashCall was a “credit services business.” II. From 2007 to 2009, the Commissioner received complaints from fourteen Maryland consumers “concerning high-interest loans which [CashCall] arranged for them” and its “collection activities” with respect to those loans. At the hearing that was held before an administrative law judge (“ALJ”) on this matter, testimony was provided that showed that the consumers, who contacted CashCall seeking a loan, were often responding to difficult and pressing situations, such as loss of employment or the death of a family member. Moreover, in the words of the ALJ who presided over that hearing, the “borrowers who availed themselves of CashCall’s services” were “pushed to borrow more than they wanted” by CashCall, encountered “serious difficulty in determining a payoff amount” when they sought to pay off their loans early, and were “unable to extricate themselves from the burden of the debts they had incurred.” On June 23, 2009, after investigating CashCall’s business activities, the Commissioner issued a summary order 5 direct ³²⁰ ing CashCall to, among other things, “cease and desist” from engaging in its current business activities in Maryland, which, in the Commissioner’s view, amounted to the unlicensed provision of “credit services.” In response to that preliminary order, CashCall requested a hearing in the Office of Administrative Hearings.

After that request was granted, the aforementioned hearing was held before an ALJ. And, following that hearing, the ALJ issued, on December 3, 2010, a “proposed decision,” recommending that the Commissioner find that CashCall had violated the MCSBA and the Maryland Consumer Loan Law by engaging in the credit services business without a license to do so, that the Commissioner issue a final cease and desist order prohibiting CashCall from operating a “credit services business” in Maryland, and that Cash-Call be directed to pay a civil penalty for each of the 5,651 loans it had assisted consumers in obtaining. Then, generously treating each of the 5,651 loans as a “first offense,” rather than as a “second” or “subsequent offense,” the ALJ suggested that CashCall be ordered to pay a penalty of $1,000 per loan 6 for a total civil penalty of $5,651,000. On January 3, ³²¹ 2011, the Commissioner issued a “proposed order” adopting those recommendations.

CashCall thereafter filed exceptions to the Commissioner’s “proposed order.” The hearing on those exceptions, however, was subsequently stayed, at CashCall’s request, pending the Court of Appeals’ decision in Gomez v. Jackson Hewitt, Inc., 427 Md. 128 , 46 A.3d 443 (2012). When that decision was issued, the stay was lifted and a hearing was held before the Commissioner on November 8, 2012. Upon the conclusion of that hearing, the Commissioner issued a “final order,” requiring both CashCall and Reddam to cease and desist from engaging in “credit services business” activities in Maryland, and he imposed a civil penalty of $5,651,000, for which appel-lees were jointly and severally liable. On December 7, 2012, CashCall—but not Reddam—filed a petition for judicial review and a motion to stay enforcement of the Commissioner’s order in the Baltimore City circuit court.

Four months later, on April 11, 2013, CashCall and Reddam filed an amended petition for judicial review, adding Reddam as a petitioner. The circuit court, however, dismissed their joint petition as “untimely.” That ruling, in effect, eliminated Reddam as a party to the judicial-review proceeding. After observing that CashCall “may very well” be a “predatory entity preying on” Maryland consumers that has “developed a scheme to evade the usury laws of Maryland,” the circuit court nonetheless reversed the Commissioner’s final order, declaring that, under the Court of Appeals’ decision in Gomez , CashCall was not a “credit services business,” under the MCSBA and therefore was not required to comply with the terms of that act. A supplemental order was thereafter issued by that court to make it clear that its reversal of the Commissioner’s final order pertained only to CashCall and not Reddam, as Reddam was not a party to the original and only extant petition for judicial review.

The Commissioner then noted an appeal from that decision, which was followed by a cross-appeal filed by CashCall and Reddam, challenging the court’s dismissal of their amended ³²² petition for judicial review and the scope of its order reversing the Commissioner’s decision. That cross-appeal, however, does not merit further discussion as the issues it raises are rendered moot by our holding that CashCall did, in fact, violate the MCSBA. 7 III. It is undisputed that CashCall was assisting Maryland consumers to obtain loans from the two federally insured out-of-state banks. The Commissioner therefore contends that he was correct in determining that CashCall was operating as an unlicensed “credit services business” in Maryland in violation of the MCSBA.

CashCall, of course, claims otherwise. It maintains, and the circuit court agreed, that, under the Court of Appeals’ then recent decision in Gomez v. Jackson Hewitt, Inc., 427 Md. 128 , 46 A.3d 443 (2012), which considered the MCSBA’s definition of a “credit services business,” CashCall was not a credit services business because it did not receive “direct payment” from consumers for its services, a requirement CashCall asserts is, under Gomez , a prerequisite for the MCSBA to apply. “In an appeal from a circuit court’s judicial review of an administrative agency proceeding, we review the final ³²³ decision of the agency, not the circuit court.” Md. Dept. of Transp. v. Maddalone, 187 Md.App. 549, 571 , 979 A.2d 229 (2009). And that review is generally “a narrow and highly deferential inquiry.” McL-Nat. Capital Park & Planning Comm’n v. Greater Baden-Aquasco Citizens Ass’n, 412 Md. 73, 83 , 985 A.2d 1160 (2009).

Indeed, our review is “limited to determining if there is substantial evidence in the record as a whole to support the agency’s findings and conclusions, and to determine if the administrative decision is premised upon an erroneous conclusion of law.” United Parcel Service, Inc. v. People’s Counsel for Balt. Cnty., 336 Md. 569, 577 , 650 A.2d 226 (1994). In making that determination, the test we apply is “whether a reasoning mind could reasonably have reached the conclusion reached by the agency, consistent with a proper application of the controlling legal principles.” HNS Dev., LLC v. People’s Counsel for Balt. Cnty., 200 Md.App. 1,14 , 24 A.3d 167 (2011) (quotations and alterations omitted).

Moreover, in reviewing an agency’s conclusions of law, we afford “considerable weight” to the “agency’s application of the statutory and regulatory provisions that are regularly administered by the agency,” Md. Bd. of Physicians v. Elliott, 170 Md.App. 369, 408 , 907 A.2d 321 (2006), though an agency’s construction of a statute “is not entitled to deference ... when it conflicts with the unambiguous statutory language,” Gomez v. Jackson Hewitt, Inc., 427 Md. 128 ,170 n. 35, 46 A.3d 443 (2012) (internal citation omitted). In other words, it is “always within our prerogative to determine whether an agency’s conclusions of law are correct.” Crofton Convalescent Ctr. v. Dep’t of Health & Mental Hygiene, 413 Md. 201, 215 , 991 A.2d 1257 (2010) (internal quotation marks and citations omitted). The MCSBA, in conjunction with the Maryland Consumer Loan Law, 8 grants the Commissioner broad licensing, investigatory, and enforcement authority over what the MCSBA ³²⁴ deems to be a “credit services business,” a business that is defined by the MCSBA as one in which a person [ 9 ] who, with respect to the extension of credit by others, sells, provides, or performs, or represents that such person can or will sell, provide, or perform, any of the following services in return for the payment of money or other valuable consideration: ... (ii) Obtaining an extension of credit for a consumer; or (iii) Providing advice or assistance to a consumer with regard to [obtaining an extension of credit for a consumer].

Com. Law § 14—1901(e)(1) (emphasis added). The act defines an “extension of credit” as “the right to defer payment of debt or to incur debt and defer its payment, offered or granted primarily for personal, family, or household purposes,” Com. Law § 14—1901(f), and a “consumer” as “any individual who is solicited to purchase or who purchases for personal, family, or household purposes the services of a credit services business,” Com.

Law § 14-1901(c). The MCSBA requires a “credit services business” to, among other things, secure a license from the Commissioner, Com. Law § 14—1903(b); maintain a surety bond, Com. Law §§ 14-1908-1909; and provide an interested Maryland consumer with a written information statement, Com.

Law §§ 14-1904-1905, which describes the duties and obligations of the credit services business (such as the obligation to provide a complete and detailed description of the services to be performed by the credit services business and the total amount the consumer will have to pay for those services) and the rights of the Maryland consumer (such as the right to file a complaint with the Commissioner against a credit services business). It further requires that any contract such a business enters into with a consumer include a statement that the consumer has the right to “cancel th[e] contract at any time prior to mid ³²⁵ night of the third business day after the date of the transaction.” Com. Law § 14-1906. In assisting a Maryland consumer in obtaining a loan, however, the credit services business may not help a consumer secure a loan with an interest rate that exceeds the maximum interest rates permitted by Maryland law.

Under Maryland law, the maximum annual interest rate for a loan of $2,000 or less is 33%, and for a loan greater than $2,000, 24%. Com. Law § 12—306(a)(6). But—of particular relevance to Cash-Call’s business practices—Maryland limits on interest rates for consumer loans do not apply to federally insured out-of-state banks, and “a federally insured depository institution, whether federal or state-chartered, may charge the interest rate permitted in its home state to borrowers across state lines, regardless of the legal rate in the borrower’s state.” Gomez v. Jackson Hewitt, Inc., 427 Md. 128, 163 , 46 A.3d 443 (2012) (internal quotation marks and citation omitted).

But, though federal law permits federally insured out-of-state banks to charge what would otherwise be usurious rates of interest on loans issued to Maryland consumers, the MCSBA prohibits a “credit services business” from “assisting] a consumer to obtain an extension of credit at a rate of interest which, except for federal preemption of State law, would be prohibited” under state law. Com. Law § 14-1902(9). That is to say, a credit services business may not, under the MCSBA, assist a consumer in obtaining a loan, from any in-state or out-of-state bank, at an interest rate prohibited by Maryland law.

IV

As to whether CashCall was a “credit services business” under the MCSBA’s definition of that term, both Cash-Call and the Commissioner direct us to the Court of Appeals’ decision in Gomez v. Jackson Hewitt, Inc., 427 Md. 128 , 46 A.3d 443 (2012). In Gomez , Maryland’s highest court was asked to decide whether a “tax preparer” was acting as a “credit services business” when, in the course of preparing tax ³²⁶ returns for its clients, it also assisted those clients in obtaining a “refund anticipation loan,” acronymically known as a “RAL.” To provide that service, the tax preparer in Gomez , Jackson Hewitt, had entered into an agreement with a lender, Santa Barbara Bank & Trust (“SBBT”), pursuant to which SBBT would “offer, process and administer,” to Jackson Hewitt customers, a RAL, specifically, a “high interest loan ... secured by the consumer’s expected income tax refund,” which enables “the consumer to receive a tax refund roughly ten days sooner than the IRS would deliver it.” Id. at 133-34 & n. 4, 46 A.3d 443 . To promote and facilitate such loans, Jackson Hewitt would customarily inform its clients of the availability of these RALs and assist interested clients in filling out applications for those loans. Id. at 134-36 , 46 A.3d 443 .

Upon approving a loan, SBBT paid a “fixed annual fee as well as variable payments tied to growth in the [RAL] Program” to Jackson Hewitt for the “performance of services” rendered by Jackson Hewitt “on behalf of SBBT.” Id. at 134 , 46 A.3d 443 . After preparing the federal income tax return of Alicia Gomez, Jackson Hewitt helped her obtain a RAL in accordance with its arrangement with SBBT. Id. at 134 , 46 A.3d 443 . The loan Gomez received from SBBT had an 85.089% annual interest rate for a total loan amount of $2,323.

Id. at 136 , 46 A.3d 443 . But the bank did not disburse the total amount of the loan to Gomez. Id. It paid to her just $1,950.97 of the $2,323 loan, retaining $88.03 as fees and paying $284 of the loan amount to Jackson Hewitt, the “tax preparation fee,” which Gomez owed Jackson Hewitt.

Id. Gomez subsequently brought suit against Jackson Hewitt, contending that Jackson Hewitt was a “credit services business,” that it was therefore subject to the MCSBA, and that it had violated the MCSBA by arranging her RAL without complying with the duties and obligations imposed by that act on such businesses. Id. at 137-38 , 46 A.3d 443 . When Jackson Hewitt moved to dismiss the complaint on the grounds that Jackson Hewitt was not a “credit services business” and therefore the MCSBA did not apply to it, the circuit ³²⁷ court