Pennsylvania Credit Repair Law
PA ST T. 73 P.S.,
Chapter 36. Credit Services Act
§ 2181. Short title
This act shall be known and may be cited as the Credit Services
Act.
§ 2182. Definitions
The following words and phrases when used in this act shall have
the meanings given to them in this section unless the context clearly indicates
otherwise:
"Advance fee." Any funds or consideration assessed or collected prior to closing
of a loan by a loan broker.
"Borrower." A person obtaining or desiring to obtain a loan of money, a
credit card or line of credit for personal, family or household purposes.
"Buyer." A natural person who is solicited to purchase or who purchases
the services of a credit services organization.
"Credit services
organization."
(1) A person who, with respect to the extension of credit by others, sells, provides or performs or represents that he or she can or will sell, provide or perform any of the following services in return for the payment of money or other valuable consideration:
(i) Improving a buyer's credit record, history or rating.
(ii) Obtaining an extension of credit for a buyer.
(iii) Providing advice or assistance to a buyer with regard to
either subparagraph (i) or (ii).
(2) The term shall not include any of the following:
(i) Any person organized, chartered or holding a license or authorization
certificate to make loans or extensions of credit pursuant to the laws of the
Commonwealth or the
(ii) Any bank, bank and trust company, trust company, savings
bank, Federal savings and loan association or savings bank located in this
Commonwealth or savings association or any subsidiary or affiliate of such
institution whose deposits are eligible for insurance by the Federal Deposit
Insurance Corporation, the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation or the Pennsylvania Savings
Association Insurance Corporation.
(iii) Any nonprofit organization exempt from taxation under section 501(c)(3) of the Internal Revenue Code of 1954 (68A
Stat. 3, 26 U.S.C. § 1 et seq.).
(iv) Any person licensed as a real estate broker where the person
is acting within the course and scope of that license.
(v) Any person admitted to practice law in this Commonwealth where
the person renders services within the course of such practice.
(vi) Any broker-dealer registered with the Securities and Exchange
Commission or the Commodity Futures Trading Commission where the broker-dealer
is acting within the course and scope of such regulation.
(vii) Any consumer reporting agency as defined in the Fair Credit
Reporting Act (Public Law 91-508, 15 U.S.C. § 1681 et seq.).
"Extension of credit." 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.
"Loan broker."
(1) A person who:
(i) For or in expectation of a
consideration fee arranges or attempts to arrange or offers to fund a loan of
money, a credit card or line of credit for personal, family or household
purposes.
(ii) For or in expectation of a
consideration fee assists or advises a borrower in obtaining or attempting to
obtain a loan of money, a credit card, a line of credit or related guarantee,
enhancement or collateral of any kind or nature.
(iii) Acts for or on behalf of
a loan broker for the purpose of soliciting borrowers.
(iv) Holds himself out as a
loan broker.
(2) The term shall not include:
(i) Any person organized,
chartered, exempt from licensure under statute or holding a license or
authorization certificate to make loans or provide credit pursuant to the laws
of the Commonwealth or the United States who is subject to regulation and
supervision by an official or agency of the Commonwealth or the United States.
(ii) Any bank, bank and trust
company, trust company, savings bank, Federal savings and loan association or
savings bank located in this Commonwealth, or savings
association or any subsidiary or affiliate of such institution, whose deposits
are eligible for insurance by the Federal Deposit Insurance Corporation, the
Savings Association Insurance Fund of the Federal Deposit Insurance Corporation
or the Pennsylvania Savings Association Insurance Corporation.
(iii) Any person licensed as a
mortgage broker under the act of December 22, 1989 (P.L. 687, No. 90), known as
the Mortgage Bankers and Brokers Act. [FN1]
(iv) Any person who is not
required to obtain a license as a mortgage banker by reason of the exceptions
contained in section 3(b) [FN2] of the Mortgage Bankers and Brokers Act.
(v) Any person licensed as a
real estate broker where the person is acting within the course and scope of
that license.
(vi) Any person admitted to
practice law in this Commonwealth where the person renders services within the
course of such practice.
(vii) Any broker-dealer
registered with the Securities and Exchange Commission or the Commodity Futures
Trading Commission where the broker-dealer is acting within the course and
scope of such regulation.
"Principal." Any officer, director, partner, joint venturer, branch manager or
other person with similar managerial or supervisory
responsibilities for a loan broker.
[FN1] 63 P.S. § 456.01 et seq.
[FN2] 63 P.S. § 456.03(b).
§ 2183. Prohibited
activities
A credit services organization and its salespersons, agents and
representatives who sell or attempt to sell the services of a credit services
organization shall not do any of the following:
(1) Charge or receive any money or other valuable consideration prior to full and complete performance of the services the credit services organization has agreed to perform for or on behalf of the buyer unless the credit services organization has, in conformity with section 7, [FN1] either obtained a surety bond issued by a surety company admitted to do business in this Commonwealth or established a trust account at a bank, bank and trust company, trust company, savings bank, Federal savings and loan association or savings bank located in this Commonwealth or savings association or any subsidiary or affiliate of such institution whose deposits are eligible for insurance by the Federal Deposit Insurance Corporation, the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation or the Pennsylvania Savings Association Insurance Corporation. If a credit services organization has obtained a surety bond or established a trust account, the salesperson, agents and representatives who sell the services of such organization shall not be required to obtain the surety bond or establish the trust account provided for by this act.
(2) Charge or receive any money or other valuable consideration
solely for referral of the buyer to a retail seller who will or may extend
credit to the buyer if the credit which is or will be extended to the buyer is
upon substantially the same terms as those available to the general public.
(3) Make or counsel or advise any buyer to make any statement
which is untrue or misleading and which is known, or which by the exercise of
reasonable care should be known, to be untrue or misleading, to a consumer
credit reporting agency or to any person who has extended credit to a buyer or
to whom a buyer is applying for an extension of credit with respect to a
buyer's creditworthiness, credit standing or credit capacity.
(4) Make or use any untrue or misleading representations in the
offer or sale of the services of a credit services organization or engage
directly or indirectly in any act, practice or course of business which
operates or would operate as a fraud or deception upon any person in connection
with the offer or sale of the services of a credit services organization.
(5) Make
or use an advertisement which guarantees that the buyer will obtain credit.
[FN1] 73 P.S. § 2187.
§ 2184. Information
sheet
Prior to the execution of a contract or agreement between the
buyer and a credit services organization or prior to the receipt by the credit
services organization of any money or other valuable consideration, whichever
occurs first, the credit services organization shall provide the buyer a
statement in writing containing all the information required by section 5.
[FN1] The credit services organization shall maintain on file or microfilm for
a period of three years an exact copy of the information sheet, personally
signed by the buyer, acknowledging receipt of a copy of the information sheet.
[FN1] 73 P.S. § 2185.
§ 2185. Contents of
information sheet
The information sheet shall include all of the following:
(1) A complete and accurate statement of the buyer's right to review any file on the buyer maintained by any consumer credit reporting agency and the right of the buyer to receive a copy of that file. The information sheet shall include the statement that a copy of the buyer's file will be furnished by the consumer credit reporting agency, and the approximate price the buyer will be charged by the credit reporting agency for a copy of the file. The information sheet shall also include a statement that information in a consumer's credit file will be provided free of charge by the consumer credit reporting agency to the consumer by telephone after written request within 30 days of the consumer's receiving a denial of credit notice.
(2) A complete and accurate statement of the buyer's right to
dispute the completeness or accuracy of any item contained in any file on the
buyer maintained by any consumer credit reporting agency.
(3) A complete and detailed description of the services to be
performed by the credit services organization for or on
behalf of the buyer and the total amount the buyer will have to pay or become
obligated to pay for the services.
(4) If the credit services organization is required to obtain a
surety bond or establish a trust account pursuant to section 3, [FN1] a
statement setting forth both of the following:
(i) The buyer's right to
proceed against the bond or trust account under the circumstances and in the
manner set forth in section 7. [FN2]
(ii) The name and address of
the surety company which issued the bond or the name and address of the
depository and the trustee and the account number of the trust account.
[FN1] 73 P.S. § 2183.
[FN2] 73 P.S. § 2187.
§ 2186. Contract
(a) Contents.--Every contract between the buyer and a credit services
organization for the purchase of the services of the credit services
organization shall be in writing, shall be dated, shall be signed by the buyer
and shall include all of the following:
(1) A conspicuous statement in size equal to 10-point bold type or the size type used for the contract provisions, whichever is larger, in immediate proximity to the space reserved for the signature of the buyer, as follows:
You, the buyer, may cancel this contract at any time prior to 12
midnight of the fifth day after the date of the transaction. See the attached
notice of cancellation form for an explanation of this right.
(2) The terms and conditions of payment, including the total of all payments to be made by the buyer, whether to the credit services organization or to some other person.
(3) A
full and detailed description of the services to be performed by the credit
services organization for the buyer, including all guarantees and all promises
of full or partial refunds, and the estimated date by which such services are
to be performed or estimated length of time for performing such services.
(4) The credit services
organization's principal business address and the name and address of its
agent, other than the Secretary of the Commonwealth, authorized to receive
service of process.
(b) Copy.--A copy of the fully completed contract and all other documents the
credit services organization requires the buyer to sign shall be given to the
buyer at the time they are signed.
(c) Notice of cancellation.--The contract shall be accompanied by a completed form in
duplicate, captioned "Notice of Cancellation," which shall be
attached to the contract and easily detachable and which shall contain, in at
least 10- point type, the following statement written in the same language as
used in the contract:
Notice of Cancellation
You may cancel this contract without any penalty or obligation within five days from the date the contract is signed.
If you cancel, any payment made by you under this contract will be
returned within 15 days following receipt by the seller of your cancellation
notice.
To cancel this contract, mail or deliver a signed and dated copy
of this cancellation notice or any other written notice to (name of seller) at
________________________________________________________________________
(address of seller) (place of business)
not later than 12 midnight (date).
I hereby cancel this transaction.
____________________ __________________________________________________
(date) (purchaser's signature)
(d) Effect of breach.--The seller's breach of a contract under this act or of any
obligation arising therefrom shall constitute a violation of this act.
§ 2187. Surety bond
If a credit services organization is required to obtain a surety
bond or establish a trust account pursuant to section 3, [FN1] the following
procedures shall be applicable:
(1) If a bond is obtained, a copy of it shall be filed with the Department of State. If a trust account is maintained, notification of the depository, the trustee and the account number shall be filed with the Department of State.
(2) The bond or trust account
required shall be in favor of the Commonwealth for the benefit of any person
who is damaged by any violation of this act. The bond or trust account shall
also be in favor of any person damaged by such practices.
(3) Any person claiming against
the bond or trust account for a violation of this act may maintain an action at
law against the credit services organization and against the surety or trustee.
The surety or trustee shall be liable only for actual damages and not the
punitive damages permitted under section 11. The aggregate liability of the surety or trustee
to all persons damaged by a credit services organization's
violation of this act shall in no event exceed the amount of the trust account
or bond.
(4) The bond or the trust
account shall be in an amount equal to 5% of the total amount of the fees
charged buyers by the credit services organization under the contracts entered
into between the credit services organization and such buyers during the
previous 12 months, but in no case shall the bond be less than $5,000 nor more
than $25,000. The amount required shall be adjusted once a year, no later than
the tenth day of the first month of the credit services organization's fiscal
year.
[FN1] 73 P.S. § 2183.
§ 2188. Restrictions on
loan brokers
(a) Registration requirement.--Loan brokers shall be registered with the Department of Banking
pursuant to regulations promulgated by the department.
(b) Registration fee.--Loan brokers seeking to be registered by the department shall pay
to the department an annual registration fee of $300.
(c) Prohibited acts.--No
loan broker shall:
(1) Assess or collect an advance fee from a borrower to provide services as a loan broker.
(2) Make or use any false or
misleading representations or omit any material fact in the offer or sale of
the services of a loan broker or engage directly or indirectly in any act that
operates or would operate as fraud or deception upon any person in connection
with the offer or sale of services of a loan broker,
notwithstanding the absence of reliance by the buyer.
(3) Make or use any false or
deceptive representation in its business dealings with a State agency or
conceal a material fact from a State agency.
(d) Responsibility of principal.--Each principal of a loan broker may be held responsible for the
actions of a loan broker, including its agents or employees in the course of
business of the loan broker.
§ 2189. Waivers and
burden of proof
(a) Waiver.--Any waiver by a buyer or borrower of the provisions of this act
shall be deemed contrary to public policy and shall be void and unenforceable.
Any attempt by a credit services organization or a loan broker to have a buyer
or borrower waive rights given by this act shall constitute a violation of this
act.
(b) Burden of proof.--In any proceeding involving this act, the burden of proving an
exemption or an exception from a definition is upon the person claiming it.
§ 2190. Enforcement
(a) Unfair trade practice.--A violation of any provision of this act shall be deemed to be a
violation of the act of December 17, 1968 (P.L. 1224, No. 387), known as the
Unfair Trade Practices and Consumer Protection Law. [FN1]
(b) Criminal offense.--Any person who violates section 8(c)
commits a felony of the third degree.
[FN1] 73 P.S. § 201-1 et seq.
§ 2191. Damages
Any buyer or borrower injured by a violation of this act or by the
credit services organization's or loan broker's breach of a contract subject to
this act may bring an action for recovery of damages. Judgment shall be entered
for actual damages, but in no case less than the amount paid by the buyer or
borrower to the credit services organization or loan broker, plus reasonable
attorney fees and costs. An award, if the trial court deems it proper, may be
entered for punitive damages.
§ 2192. Construction of
act
(a) Act not exclusive.--The
provisions of this act are not exclusive and do not relieve the parties or the
contracts subject thereto from compliance with any other applicable provision
of law.
(b) Remedies cumulative.--The
remedies provided in this act for violation of any section of this act shall be
in addition to any other procedures or remedies for any violation or conduct
provided for in any other law.
Case Law
I identified several cases
construing the Act.
Relationship between Credit Services Act and Unfair Trade Practices Act:
In re
Barker, 251 B.R. 250 (Bkrtcy. E.D. Pa.,
2000). The act regulates loan brokers
and credit repair organizations under the same umbrella term: “credit services
organization.” In Barker, the
court considered fraudulent conduct by a loan broker who charged his client a
fee and then pushed her into a higher rate loan subject to a balloon payment,
without providing her with any of the disclosures required by law. Construing the Credit Services Act, the court
noted that the fraudulent conduct at issue was a per se violation of the Act
and that any violation of the Credit Services Act was a per se violation of the
Unfair and Deceptive Trade Practices Act.
Accordingly, the court ordered recission loan broker’s fee, damages, and
attorneys fees and costs.
Scope of involvement needed to
trigger liability:
In re Lewis, 290 B.R. 541 (Bkrtcy. E.D. Pa., 2003). A mortgage broker who assisted borrower in obtaining extension of credit from a third-party lender in return for compensation qualified as “credit service organization,” within the meaning of the Credit Service Act. Broker was in violation of the Act because the broker’s contract did not contain terms required by the Act, including notice of borrower's right to cancel. In addition, a third party lender, which actually prepared the contract between the mortgage broker and the borrower and presented the agreement to the borrower for signing, was liable under the Credit Services Act and its successors in interest were liable under the Unfair Trade Practices Act which makes any violation the Credit Services Act a violation under the Unfair Trade Practices Act and explicitly applies to successors in interest to the transaction.
In re
Balko, 348 B.R. 684 (Bkrtcy. W.D. Pa.,
2006). Because the Credit Services Act
provides a cause of action for a range of conduct, including conduct arising to
fraud, a cause of action under the statute is subject to the heightened
pleading standard of civil rule 9b. In
this case, plaintiff’s general allegations fell short of the requirement under
that standard to plead allegations of fraud with particularity. Mortgage lender and trustee had no liability
under the Credit Services Act absent allegations, pled with particularity, that
they were involved in marketing or solicitation of the challenged loan.
Damages available under the Act:
In re
Statutory Exemptions:
Emma King, Vanessa Saunders and Bonnie
Emma King, Vanessa Saunders and Bonnie
1998 WL 1297102 (Pa.Com.Pl.), 35 Phila.Co.Rptr. 571
Court of
Common Pleas of
Emma
King, Vanessa Saunders and Bonnie
v.
Bernard
E. Rubin, James Montgomery, Rubin Montgomery Realty, Inc. and Credit
Workshop
Inc.
No.
9506-0113.
July 1,
1998
Business Law--Credit Services Act--Up-Front Fees--Real Estate
Broker Exclusion--Consumer Protection Law.
Defendants' requirement that participants in credit improvement
workshops pay an up-front fee did not violate the Credit Services Act, because
the workshops were part of defendants' real estate business and were exempt
under the Act's real estate broker exemption. However, collection of the fee
did violate the Consumer Protection Law. Summary judgment granted in part for
defendants and in part for plaintiffs.
Defendants offered credit improvement workshops in exchange for
payment of an up-front fee. Plaintiffs sued, asserting that defendants were
violating the terms of the Credit Services Act, 73 P.S. §2181 et seq., which prohibits the collection of an up-front fee
in exchange for the provision of credit improvement services. Plaintiffs also
claimed that defendants violated the Real Estate Licensing Act (RELA), 63 P.S. §455.101
et seq., and the Unfair Trade Practices and Consumer Protection Law, 73 P.S. §§201-1
et seq. The parties filed cross-motions for summary judgment.
Defendants asserted that they were exempt from the Credit Services
Act because the services were related to defendants' real estate brokerage and
therefore exempt under the Act's real estate broker exemption, 73 P.S. §2182(2)(iv).
The court found that the credit improvement services provided by defendants
were intended to help clients qualify for the purchase of a home and therefore
fell within the Act's real estate broker exemption.
Plaintiffs claimed that defendants violated the prohibition
against commingling funds set forth in the RELA. The court concluded that defendants
treated plaintiffs' payments as deposits, and therefore that the funds were
illegally commingled in violation of the Act. Accordingly, the court granted
summary judgment for plaintiffs on their RELA claim.
Plaintiffs were also entitled to summary judgment on their claim
under the Consumer Protection Law because 'defendants have engaged in an
elaborate scheme to trick unsophisticated clients into forfeiting money paid as
a deposit on the purchase of a home.'
Irv Acklesburg, Esquire, for Plaintiffs.
**572 Michael R. Needle,
Esquire, for Defendants.
MEMORANDUM OPINION
LEVIN,
J.
On
May 21, 1998, this court denied cross-motions for summary judgment in the
instant matter.
[FN1] Our opinion identified
the following relevant issues of material fact that precluded a ruling in favor
of either party:
FN1. The summary judgment standard under Pennsylvania Rule of Civil Procedure 1035.2 requires that:
'[A] non-moving party must adduce sufficient evidence on an issue essential to his case and on which he bears the burden of proof such that a jury could return a verdict in his favor. Failure to adduce this evidence establishes that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.' Ertel v. Patriot News Co., 544 Pa. 93, 101-102, 674 A.2d 1038, 1042 (1996).
'1)
Whether Credit Workshop was an integral part of defendants' business, offering
credit assistance in connection with real estate purchases, or a separate and
distinct entity providing only credit improvement services?
'2)
Whether Credit Workshop employees provided defendants' clients with real estate
services?
'3)
Whether the named representative plaintiffs actually received brokers' services
or merely credit services?
'4)
Whether defendants' fees were a deposit against the purchase of a home or
compensation for services provided?
'5)
Whether defendants placed their retainer fees into an escrow account(s), held
them for distribution at the payor's settlement, or used them to pay back other
clients who had gone to settlement?' May 21, 1998 opinion at pp. 3-4. Having
denied the motions, we expected to schedule the matter for a trial on the
merits.
After
entering our opinion, however, the court engaged in discussions with counsel
about how the matter should proceed. It appeared that judicial economy would be
better served by selectively supplementing the summary judgment record than **573 by holding a trial de
novo. Thus, we scheduled a second hearing to address the open issues of
material fact and clear the way for a decision on summary judgment.
The
parties reconvened on June 25, 1998. During this session, both parties
introduced new testimony and exhibits into the record. This additional evidence
answered the questions we posed above, allowing us to rule on the parties'
cross-motions for summary judgment as follows.
I. THE CREDIT SERVICES ACT CLAIM
Count
I of plaintiffs' complaint asserts a cause of action for violation of the
Credit Services Act ('CSA'), 73 P.S. §§2181 et seq.
Plaintiffs
allege that defendants Rubin Montgomery Realty, Inc. ('RMR') and Credit
Workshop Inc. ('Credit Workshop') are governed by the CSA, because they fit the
definition of a 'credit services organization':
'(1)
A person who, with respect to the extension of credit by others, sells,
provides or performs ... any of the following services in return for the
payment of money ...
'(i)
Improving a buyer's credit record, history or rating ...' 73 P.S. § 2182(1)(i).
At
the heart of this first claim is plaintiffs' assertion that the CSA prohibits
defendants' practice of collecting an up-front, non-refundable retainer fee
from clients for credit services:
'§2183.
Prohibited activities
'A
credit services organization and its salespersons, agents and representatives
who sell or attempt to sell the services of a credit services organization
shall not do any of the following:
'(1)
Charge or receive any money or other valuable consideration prior to full and
complete performance of the services the credit services organization has
agreed to perform for or on behalf of the buyer. ...' 73 P.S. § 2183(1) (emphasis added); plaintiffs' motion for summary judgment at pp.
4- 5, 11-17.
**574 Thus, plaintiffs submit
that RMR and Credit Workshop have violated the CSA by requiring an advance fee
as a condition of providing credit improvement services.
Defendants
respond that Credit Workshop is exempt from liability under the CSA's 'real
estate broker exclusion':
'(2)
The term [credit services organization] shall not include any of the following:
...
'(iv)
Any person licensed as a real estate broker where the person is acting within
the course and scope of that license.' 73 P.S. §2182(2)(iv) (emphasis added).
In
support of this contention, defendants explain that Credit Workshop only
provides its services as part of RMR's real estate business: 'Credit Workshp
services are completely connected and ancillary to, thus within 'the course and
scope' of, RMR's brokerage activity ....' Defendants' reply brief at p. 12.
Thus, defendants conclude they are exempt from the CSA.
After
the first summary judgment proceeding, this court could not determine whether
Credit Workshop's services are related to RMR's real estate brokerage services
(see questions 1-3, supra). In the second hearing, however, defendants offered
persuasive evidence that Credit Workshop's services are, indeed, part of RMR's
real estate business: Credit Workshop's only clients are RMR customers; Credit
Workshop's only business is to help RMR clients secure mortgage pre-qualification
and pre-approval toward purchase of a home; RMR managers supervise Credit
Workshop's employees and RMR pays all of Credit Workshop's operating expenses.
In light of the above, we find that Credit Workshop provides its services only
in the context of RMR's real estate brokerage business.
As a
result, we hold that the real estate broker exclusion in 73 P.S. § 2182(2)(iv) exempts defendants from liability under the CSA. We will, thus,
vacate our earlier order and grant defendants' summary judgment motion with
regard to the CSA claim pled in Count I of plaintiffs' complaint.
**575 II. THE REAL ESTATE LICENSING ACT CLAIM
Count II of plaintiffs' complaint asserts a cause of action for
violation of the Real Estate Licensing Act ('RELA'), 63 P.S. §§455.101 et seq.
This
claim centers around plaintiffs' contention that defendants improperly
deposited plaintiffs' funds in RMR's business account, violating RELA's
prohibition against commingling. The statute reads, in relevant part, as
follows:
'§455.604.
Prohibited acts
'(a)
... The commission shall have power to ... revoke a license or registration
certificate or levy fines ... where a licensee or registrant ... is found
guilty of: ...
'(5)
Failure to comply with the following requirements: ...
'(iii)
a broker shall not commingle the money or other property of his principal with
his own;
'(iv)
every broker shall immediately deposit such monies, of whatever kind or nature,
belonging to others, in a separate custodial or trust fund account maintained
by the broker with some bank or recognized depository until the transaction
involved is consummated or terminated ....' 63 P.S. § 455.604(a)(5) (emphasis added); plaintiffs' motion for summary judgment at pp.
3, 17-21.
Plaintiffs
initially claimed that the money they paid RMR was a deposit, because
defendants had promised to refund the money as a credit at settlement if the
client purchased a home through RMR. Plaintiffs argued that defendants' policy
of holding deposits in RMR's general business account, instead of in separate
trust accounts, violated the RELA prohibition against commingling. Plaintiffs'
motion for summary judgment at pp. 4-5, 8.
Defendants
responded that plaintiffs' up-front payment was not a deposit, because RMR's
brokerage contracts call the money a fee for credit and/or real estate
services. Defendants noted that RELA allows brokers to receive a fee for
services: 'Nothing in RELA or common law precludes brokers from being paid ...
advance fees ....' Defendants' reply brief at p. **576 21. Thus, defendants
claimed that placing the fee into RMR's business account was proper, because
RELA only requires that funds 'belonging to others' be held in trust. 63 P.S. § 455.604(a)(5)(iv). In defendants' view, since the fee belonged to RMR, there had
been no improper commingling.
After
our first proceeding, this court was unable to determine how to characterize
the funds plaintiffs paid RMR (see questions 4-5, supra). However, in the
second hearing, plaintiffs presented substantial additional evidence that, in
the course of its business, RMR treats plaintiffs' up-front payments as a
deposit: RMR drafts financial statements in which the funds appear as an asset
belonging to the client; RMR writes escrow letters in which the funds appear as
a deposit; RMR completes settlement sheets listing the funds on the buyer's
side, like a deposit placed in escrow, and RMR only returns the funds by
issuing a credit on the settlement sheet or producing a check made out to the
client at closing. In light of the above, we find that defendants treated
plaintiffs' up-front payments as deposits, and that plaintiffs have correctly
characterized these funds as monies 'belonging to another.'
As a
result, we hold that defendants improperly commingled plaintiffs' deposits with
their own business funds in violation of RELA sections 455.604(a)(5)(i)(iii)(iv) and (v).
[FN2] We will, thus, vacate
our earlier order and grant plaintiffs' summary **577 judgment motion with
regard to the RELA claim pled in Count II of plaintiffs' complaint.
FN2. Plaintiffs
also brought to the court's attention a December 4, 1996 decision of the Real
Estate Commission based on identical facts: In the Matter of John F. Griffin,
t/d/b/a American Realty Professionals, Docket No. 0608-56-1996. In this case, a
realtor charged his clients a $600 'non-refundable' retainer fee that was to be
'refunded' to the client at settlement. Findings of Fact 272-75. The realtor
placed the clients' funds into a business account rather than into separate
escrow accounts.
III. THE CONSUMER PROTECTION ACT CLAIM
Count II of plaintiffs' complaint also includes a cause of action
for violation of the Consumer Protection Law ('CPL'), 73 P.S. §§201-1 et seq.
Plaintiffs
assert a private CPL action against defendants arising out of the RELA
violation discussed above. The CPL provides:
'§201-9.2.
Private actions
'(a)
Any person who purchases or leases goods or services primarily for personal,
family or household purposes and thereby suffers any ascertainable loss of
money or property, real or personal, as a result of the use or employment by
any person of a method, act or practice declared unlawful by section 3
[FN3] of this act, may bring
a private action, to recover actual damages ....' 73 P.S. §201-9.2.
FN3. Section 3 refers to the activities prohibited by 73 P.S. §201-3, including 'Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce [defined by the enumerated subclauses of section 201-2].'
FN4. We believe defendant is correct that primary jurisdiction over plaintiffs' RELA claim lies with the Pennsylvania Real Estate Commission under 63 P.S. §455.604(a). Defendants' reply brief at pp. 18-20.
In support of their CPL claim, plaintiffs have established that
defendants: 1) accept money from plaintiffs toward the purchase of a home; 2)
promise that the money will be refunded at settlement; 3) call the money a fee;
4) place the money in RMR's business account; 5) treat the money as a deposit
in loan and real estate transactions and 6) refuse to return the money to
anyone who does not ultimately purchase a home through RMR. In light of the
above, we find that defendants have engaged in an elaborate scheme to trick
unsophisticated clients into forfeiting money paid as a deposit on the purchase
of a home.
As a result, we hold that plaintiffs have made out a private cause
of action under CPL section 201-9.2.
We will, thus, vacate our earlier order and grant plaintiffs' summary judgment
motion with regard to the CPL claim pled in Count II of the complaint.
Pa.Com.Pl. 1998.
Emma King, Vanessa Saunders and Bonnie
0 #2 2059
In re Lewis, 290 B.R. 541 (Bkrtcy. E.D. Pa., 2003)
290 B.R. 541
E.D.
Pennsylvania.
In re
Helen LEWIS, Debtor.
Helen
Lewis, Plaintiff,
v.
Delta
Funding Corporation and Bankers Trust Company of
Defendants.
Bankruptcy
No. 00-32042 (KJC).
Adversary
No. 00-935.
March
25, 2003.
Chapter 13 debtor-borrower brought adversary proceeding for
determination of validity, priority and extent of residential mortgage lien,
based on lender's alleged violations of the Truth in Lending Act (TILA), Home
Ownership and Equity Protection Act (HOEPA), Real Estate Settlement Procedures
Act (RESPA), Pennsylvania Unfair Trade Practices and Consumer Protection Law
(UDAP), and Pennsylvania Credit Service Act (CSA). On debtor's motion for
summary judgment, the Bankruptcy Court, Kevin J. Carey, J., held that: (1) final rule of the Federal Reserve Board,
that revised official staff commentary to regulation implementing provisions of
the TILA to require disclosure, in connection with residential mortgage loans
subject to HOEPA, of any balloon payments that borrowers will be required to
make, did not merely clarify but revised existing law, and could not be applied
retroactively; (2) lender's disclosure of the "note rate" which
borrower would be required to pay immediately beneath annual percentage rate
(APR) did not render its disclosure confusing; (3) genuine issues of material
fact precluded entry of summary judgment on RESPA, referral fee claim; (4)
single contact, which debtor initiated by telephoning mortgage broker from her
home, was insufficient to bring brokerage contract within door-to-door sales
provision of Pennsylvania's UDAP; (5) lender was liable under the Pennsylvania
CSA; and (6) genuine issues of material fact, as to type and amount of
financing sought by debtor and whether loan terms were sufficiently explained,
precluded entry of summary judgment for debtor on claim arising out of lender's
allegedly unfair and deceptive practices in inducing debtor to enter into
refinancing of her low-interest mortgage loan.
Motion granted in part and denied in part.
[1] KeyCite Notes 
92B Consumer Credit
92BII Federal Regulation
92BII(A) In General
92Bk32 k. Truth in Lending, in
General. Most Cited Cases
Final rule of the Federal Reserve Board, that revised official
staff commentary to regulation implementing provisions of the Truth in Lending
Act (TILA) to require disclosure, in connection with residential mortgage loans
subject to the Home Ownership and Equity Protection Act (HOEPA), of any balloon
payments that borrowers will be required to make on HOEPA early disclosure
statement, did not merely clarify but revised existing law, and could not be
applied retroactively to home loan that closed before rule went into effect. Truth
in Lending Act, §§ 102 et seq., 129 et seq., as amended, 15 U.S.C.A. §§ 1601
et seq., 1639 et seq.; 12 C.F.R. § 226.32(c)(3).
[2] KeyCite Notes
92B Consumer Credit
92BII Federal Regulation
92BII(B) Disclosure Requirements
92Bk52 k. Price, Balance, Rate, and Charges in General. Most Cited Cases
Lender's disclosure, in connection with residential mortgage loan
subject to requirements of the Home Ownership and Equity Protection Act
(HOEPA), of the "note rate" which borrower would be required to pay
immediately beneath annual percentage rate (APR), did not render confusing the
lender's required disclosure of APR rate, where both rates were clearly
labelled, lender provided explanation of what APR rate reflected, and APR rate,
which was only rate that lender was required to disclose, appeared more
conspicuously on disclosure form. Truth in Lending Act, §§ 122(a), 129, as
amended, 15 U.S.C.A. §§ 1632(a),
1639; 12 C.F.R. § 226.32.
[3] KeyCite Notes
92B Consumer Credit
92BII Federal Regulation
92BII(B) Disclosure Requirements
92Bk51 k. Form and Sufficiency of Disclosure in General. Most Cited Cases
Disclosure requirements of the Truth in Lending Act (TILA) and the
Home Ownership and Equity Protection Act (HOEPA) do not prohibit lenders from
including additional information on disclosure forms, beyond that required by
the TILA and HOEPA. Truth in Lending Act, §§ 102 et seq., 129 et seq., as
amended, 15 U.S.C.A. §§ 1601
et seq., 1639 et seq; 12 C.F.R. § 226.32.
[4] KeyCite Notes
92B Consumer Credit
92BII Federal Regulation
92BII(B) Disclosure Requirements
92Bk52 k. Price, Balance, Rate, and Charges in General. Most Cited Cases
Lender's disclosure, in connection with residential mortgage loan
subject to requirements of the Home Ownership and Equity Protection Act
(HOEPA), of both the "loan amount" in addition to "amount
financed" did not render confusing the lender's required disclosure of
"amount financed," especially where borrower received itemization of
"amount financed," i.e., of principal amount of loan minus prepaid
finance charge, on Good Faith Estimate Of Settlement Charges provided at
settlement, along with TILA disclosure form. Truth in Lending Act, §§ 102 et
seq., 129, as amended, 15 U.S.C.A. §§ 1601
et seq., 1639; 12 C.F.R. § 226.32.
[5] KeyCite Notes
51 Bankruptcy
51II Courts; Proceedings in General
51II(B) Actions and Proceedings in General
51k2164 Judgment or Order
51k2164.1 k. In General. Most Cited Cases
Genuine issues of material fact, as to whether debtor-borrower
agreed to pay mortgage broker for his services in connection with obtaining
loan and whether services actually performed by broker in connection with loan
in preparing loan application, ordering appraisal, maintaining contact with
debtor-borrower and lender, attending the closing, and possibly negotiating
settlement of one of debtor's outstanding debts were "reasonably
related" to the $3,097.50 fee that broker collected, precluded entry of
summary judgment for debtor in adversary proceeding under the Real Estate
Settlement Procedures Act (RESPA) challenging broker's fee as alleged illegal
kickback or referral fee. Real Estate Settlement Procedures Act of 1974, §
8(a), 12 U.S.C.A. § 2607(a).
[6] KeyCite Notes
29T Antitrust and Trade Regulation
29TIII Statutory Unfair Trade Practices and Consumer
Protection
29TIII(A) In General
29Tk139 Persons and Transactions Covered Under General
Statutes
29Tk144 k. Subject Matter of Transaction in General. Most Cited Cases
(Formerly 92Hk6 Consumer Protection)
Pennsylvania Unfair Trade Practices and Consumer Protection Law
(UDAP) applies to protect consumers from deceptive acts or practices in
residential mortgage industry. 73 P.S. § 201-1
et seq.
[7] KeyCite Notes
29T Antitrust and Trade Regulation
29TIII Statutory Unfair Trade
Practices and Consumer Protection
29TIII(C) Particular Subjects and
Regulations
29Tk223 k. Home Solicitation or
Delivery. Most Cited Cases
(Formerly 92Hk6 Consumer Protection)
Single contact, which consumer initiated by telephoning
residential mortgage broker from her home, was insufficient to bring brokerage
contract within door-to-door sales provision of Pennsylvania's Unfair Trade
Practices and Consumer Protection Law (UDAP), so as to impose on broker an
obligation to provide notice of consumer's three-day right to cancel brokerage
agreement. 73 P.S. § 201-7.
[8] KeyCite Notes
92B Consumer Credit
92BI In General
92Bk2 k. Constitutional and
Statutory Provisions; Ordinances. Most Cited Cases
Pennsylvania Credit Service Act (CSA) was enacted to regulate
conduct of credit service organizations and loan brokers. 73 P.S. § 2181 et seq.
[9] KeyCite Notes
92B Consumer Credit
92BI In General
92Bk3 License and Regulation in General
92Bk4 k. Particular Businesses or Transactions. Most Cited Cases
Mortgage broker who assisted borrower in obtaining extension of
credit from third-party lender in return for compensation qualified as
"credit service organization," within meaning of provisions of the
Pennsylvania Credit Service Act (CSA), whose broker agreement should have
contained terms required by the CSA, including notice of borrower's right to
cancel. 73 P.S. §§ 2182,
2186.
[10] KeyCite Notes
92B Consumer Credit
92BI In General
92Bk17 k. Effect of Violation of Regulations or Lack of
License. Most Cited Cases
Where third-party lender with which mortgage broker placed loan
had itself prepared broker agreement, it was liable, under the Pennsylvania
Credit Service Act (CSA), for any deficiencies therein, including lack of
notice of borrower's right to cancel. 73 P.S. § 2186.
[11] KeyCite Notes
51 Bankruptcy
51II Courts; Proceedings in General
51II(B) Actions and Proceedings in General
51k2164 Judgment or Order
51k2164.1 k. In General. Most Cited Cases
Genuine issues of material fact, as to type and amount of
financing sought by debtor-borrower and whether loan terms were sufficiently
explained, precluded entry of summary judgment for debtor in adversary
proceeding that she had brought to recover from residential mortgage lender for
allegedly engaging in unfair and deceptive practices, in violation of the
Pennsylvania Unfair Trade Practices and Consumer Protection Law (UDAP), by
inducing her, in return for cash proceeds of only $7,500.32, to refinance her
existing low-interest mortgage loan for 15-year loan that bore interest at
significantly higher rate, that required her to make monthly payments of
$523.96, and that also required her, at end of this 15 year-term, to make
balloon payment that was only $4,364.98 less than principal amount of loan;
while loan terms seemed harsh, court could not infer a violation of UDAP solely
from harshness of terms, without examination of facts surrounding parties'
conduct. 73 P.S. § 2181 et seq.
*543
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Alan M. White,
*544
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Darryl J. Chimko, Rochester, MI, Stephen P. Doughty, Lyons, Doughty & Veldhuis, P.C., Mt. Laurel, NJ, Heidi R. Spivak, Mark J. Udren & Associates, Cherry Hill, NJ, for
creditors.
MEMORANDUM OPINION [FN1]
FN1. The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334, § 157(a). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(1) and (b)(2)(A),(B),(K) and (O).
KEVIN J. CAREY, Bankruptcy Judge.
On December 11, 2002, Helen Lewis, a debtor in a case filed under
chapter 13 of the Bankruptcy Code (the "Debtor"), filed an adversary
proceeding to determine the validity, priority, and extent of the defendants'
mortgage lien against the her residence. Currently before the Court is the
Debtor's Motion for Summary Judgment.
BACKGROUND
On
July 16, 1997, the Debtor entered into a loan transaction (the
"Loan") with Eagle National Bank ("Eagle") by executing a
balloon note in the principal amount of $44,250.00, secured by a mortgage
against the Debtor's residence located at 8045 West Chester Pike, Upper Darby,
PA. See Balloon Note and Mortgage, attached as Exhibits A and B to the
Defendants' Mem. of Law. The Loan paid off an existing mortgage, a low-rate
assistance loan from the Pennsylvania Housing Finance Agency, several credit
card bills, and city water and tax bills. See HUD-1 Settlement
Statement, attached as Exhibit B to the Debtor's Mem. of Law. The Debtor
received $7,500.32 cash proceeds.
On the same day as the Loan closing, Eagle assigned the mortgage
to defendant Delta Funding Corporation ("Delta"). See
Assignment of Mortgage, attached as Exhibit F to Debtor's Mem. of Law. Delta
later assigned it to defendant Bankers Trust Company of
FN2. The second Assignment is not dated, but recites that the mortgage was recorded on September 12, 1997, so it appears that this second assignment occurred sometime after that date. In their answer, the Defendants admitted that Bankers Trust was the current holder of the mortgage, as trustee, and that Delta filed a proof of claim in connection
with the mortgage. See Defendants' Answers to ¶¶ 5 and 6 of
Debtor's Complaint. According to the Defendants, the mortgage was "owned
or being serviced by Delta" at the time the proof of claim was filed
(i.e., on or about November 22, 2000), but is currently being serviced by
Bankers Trust and Delta, through its attorney-in-fact, Ocwen Federal Bank, FSB.
Defendant's Memorandum of Law, pp. 1-2.
Bankers Trust obtained a foreclosure judgment against the Debtor
in the Philadelphia County Court of Common Pleas on July 27, 2000. See
Proof of Claim, attached as Exhibit D to Debtor's Mem. of Law. After the Debtor
filed for bankruptcy protection on September 26, 2000, Delta filed a proof of
claim demanding $54,190.81.
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and Protection Law, 41 Pa. Stat. § 502
(the "Usury Count"), and Pennsylvania's Unfair Trade Practices and
Consumer Protection Law, 73 P.S. § 201-1
et seq. On February 22, 2002, the Debtor filed this Motion for Summary
Judgment (the "Summary Judgment Motion"), together with a memorandum
of law in support of the Summary Judgment Motion, on all but the Usury Count.
On March 20, 2002, the Defendants filed a response and a memorandum of law in
opposition to the Summary Judgment Motion. On April 11, 2002, the parties
presented oral argument in support of their positions at a hearing before this
Court.
For the reasons which follow, the Summary Judgment Motion will be
denied as to Counts I and II, and granted, in part, as to Count IV.
LEGAL STANDARD
Summary judgment is appropriate
when "the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law." Fed.R.Civ.P. 56(c),
made applicable to this adversary proceeding by Fed. R. Bankr.P. 7056.
In a motion for summary judgment, the moving party "always bears the
initial responsibility of informing the ... court of the basis for its motion,
and identifying those portions of 'the pleadings, depositions, answers to
interrogatories and admissions on file, together with the affidavits, if any,'
which it believes demonstrate the absence of a genuine issue of fact." Celotex Corp. v.
Catrett, 477 U.S. 317, 323,
106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986).
Once the moving party has made a proper motion for summary
judgment, the burden shifts to the non-moving party, pursuant to Rule 56(e),
which states, "[w]hen a motion for summary judgment is made and supported
as provided in this rule, an adverse party may not rest upon the mere
allegations or denials of the adverse party's pleading, but the adverse party's
response, by affidavits or as otherwise provided in this rule, must set forth
specific facts showing that there is a genuine issue for trial. If the adverse
party does not so respond, summary judgment, if appropriate, shall be entered
against the adverse party." Fed R. Civ. P. 56(e);
see also Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
The party opposing the motion "must do more than simply show that there is
some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. 1348.
Before a court will find that a dispute about a material fact is
genuine, there must be sufficient evidence upon which a reasonable jury could
return a verdict for the non-moving party. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242,
248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The court must view the
facts and draw inferences in a light most favorable to the non-moving party. Anderson, 477 U.S. at 255, 106 S.Ct. at 2513-14.
"[W]here the non-moving party's evidence contradicts the movant's, then
the non-movant's must be taken as true." Pastore v. Bell Tel.
Co., 24 F.3d 508, 512 (3d
Cir.1994). It is not the role of the judge to weigh the evidence or
to evaluate its credibility, but to determine "whether there is a genuine
issue for trial." Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d
202 (1986).
DISCUSSION
1. Count I-TILA and HOEPA
Violations.
A creditor in a consumer credit transaction, other than an open
end credit plan, is *546
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required
to make certain disclosures under TILA before credit is extended. 15 U.S.C. § 1638(a), (b).
The creditor must also provide additional disclosures for mortgages subject to
HOEPA "not less than 3 business days prior to consummation of the
transaction." 15 U.S.C. § 1639(b)(1).
[FN3] The early disclosures
required by HOEPA are set forth 12 C.F.R. § 226.32(c). [FN4]
FN3. The Debtor asserts that the Loan is subject to HOEPA under 15 U.S.C. § 1602(aa)(1)(B) because it is a mortgage loan in which the total points and fees charged, in addition to interest, exceed 8% of the loan amount. See Debtor's Mem. of Law, p. 4 n. 1. The Defendants deny this allegation of the Debtor's complaint; however, in their Memorandum of Law, they conceded "for purposes of this motion for summary judgment" that HOEPA applies to the loan transaction. See Defendant's Mem. of Law, p. 3.
FN4.
Regulation Z, 12 C.F.R. Part 226 (1979) was promulgated by the Federal Reserve
Board to implement the TILA. See Smith v. Fidelity
Consumer Discount Co., 898 F.2d 896, 898 (3d Cir.1990)("To
implement TILA, Congress 'delegated expansive authority to the Federal Reserve
Board to elaborate and expand the legal framework governing commerce in
credit.... The Board exerted its responsibility by promulgating Regulation Z.'
") (citations omitted). The HOEPA early disclosure form is also known as a
"Section 32 Form" because its requirements are located in section 32
of Regulation Z.
In her Motion for Summary Judgment, the Debtor claims that Eagle
failed to comply with the HOEPA disclosure requirements. [FN5] More specifically, the Debtor
argues that, although she received a HOEPA disclosure statement more than three
business days prior to the loan closing, the disclosure statement was
insufficient because: (1) it did not disclose that the transaction included a
balloon payment, (2) it disclosed a "note rate" in addition to the
required annual percentage rate, and (3) it listed a "loan amount"
that was greater than the amount that was actually financed. See Ex. A
to Debtor's Mem. of Law.
FN5. Although the Debtor's allegations address the conduct of Eagle, she sued Delta and Bankers Trust as assignees of the mortgage. Assignees of HOEPA mortgages are liable for claims that could be asserted against the
original creditor of the mortgage. 15 U.S.C. § 1641(d).
(a) The balloon payment.
[1] First,
the Debtor claims that the balloon payment should have been disclosed on the
HOEPA disclosure statement pursuant to 12 C.F.R. § 226.32(c)(3),
which now provides, in part, as follows:
(c) Disclosures. In addition to other disclosures required by this
part, in a mortgage subject to this section, the creditor shall disclose the
following in conspicuous type size:
....
(3) Regular payment; balloon payment. The amount of the regular
monthly (or other periodic) payment and the amount of any balloon payment. The
regular payment disclosed under this paragraph shall be treated as accurate if
it is based on an amount borrowed that is deemed accurate and is disclosed
under paragraph (c)(5) of this section.
12 C.F.R. §
226.32(c)(3)(2003). The prior version of 12 C.F.R. § 226.32(c)(3)
provided:
(c) Disclosures. In addition to other disclosure required by this
part, in a mortgage subject to this section the creditor shall disclose the
following:
....
(3) Regular payment. The amount of the regular monthly (or other
periodic) payment.
*547
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12 C.F.R. §
226.32(c)(3)(1995). On March 6, 1997, the Federal Reserve Board
published a Final Rule revising the official staff commentary to Regulation Z
which, inter alia, added a paragraph to the commentary for § 226.32 advising
that balloon payments must be disclosed on the HOEPA early disclosure
statement. 62 Fed.Reg.10193, 10198
(March 6, 1997)(the "1997 Revisions"). Although the 1997
Revisions were effective on February 28, 1997, compliance was optional until
October 1, 1997. Id. at 10193. [FN6] The Debtor's loan
transaction occurred on July 16, 1997. The Debtor admits that, at the time of
the subject loan transaction, § 226.32 did
not specifically require disclosure of balloon payments.
FN6. Official Staff Commentary issued by the Federal Reserve Board is "accorded the same deference" as the regulations. Wright v. Mid-Penn Consumer Discount Company, 133 B.R. 704, 708 (E.D.Pa.1991) citing Ralph J. Rohner, The Law of Truth in Lending, 2.01[2][c] (1989). The requirement for disclosing balloon payments was later moved from the Official Staff Commentary into § 226.32(c)(3) itself, "to aid in compliance." 66 Fed.Reg. 65604, 65610 (December 20, 2001).
The Debtor argues, however, that the 1997 Revisions did not
replace any existing language in the statute or regulation regarding balloon
payments and, therefore, the new paragraph added to the Official Staff
Commentary for § 226.32 was
not a change to the prior law, but a clarification of existing law. The Debtor
also argues that the only reasonable interpretation of 12 C.F.R. § 226.32(c)(3)
requires disclosure of a balloon payment because, otherwise, a consumer would
be misled into believing that the regular monthly payments would fully amortize
the loan. Debtor's Mem. of Law, p. 6.
To support her argument, the Debtor relies upon Clay v. Johnson, 264 F.3d 744, 749 (7th Cir.2001),
in which the Seventh Circuit Court of Appeals determined that the final version
of a comment adopted by the Federal Reserve Board for the Official Staff
Commentary to Regulation Z noted that it was intended to interpret and clarify
a creditor's existing obligations under TILA and Regulation Z. Clay, 264 F.3d at 749. The final version
had not been adopted at the time the loan at issue in Clay was made, and
the parties disputed whether the comment could be applied retroactively. The Clay
Court stated:
If an agency promulgates a new rule that changes the substantive
state of existing law, that rule is not retroactive unless Congress expressly
authorized retroactive rulemaking and the agency clearly intended the rule to
be retroactive....However, a "rule simply clarifying an unsettled or
confusing area of the law ... does not change the law, but restates what the
law according to the agency is and has always been."... A clarifying rule,
therefore, can be applied to the case at hand just as a judicial determination
construing a statute can be applied to the case at hand....We give great
deference to the promulgating agency's expressed intent as to whether its rule
changes the law or merely clarifies it.
Clay, 264 F.3d at 749 (citations
omitted). The 1997 Revisions applicable to this Loan do not include any
language to suggest that the Board was clarifying existing law. Instead, the
1997 Revisions refer to the new paragraph about disclosure of balloon payments
as "revisions and additions" to Paragraph 32(c)(3). 62 Fed.Reg. at 10198.
Furthermore, the phased-in, rather than immediate, implementation of the 1997
Revisions suggests a lack of urgency in requiring the balloon payment
disclosure. Finally, the Board's decision to add language to the Official Staff
Commentary of *548
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§ 226.32(c)(3)
tends to negate the Debtor's argument that § 226.32(c)(3)
is subject to only one reasonable interpretation. Accordingly, failure to
include the balloon payment in the HOEPA disclosure form provided to the Debtor
did not violate the requirements of TILA and Regulation Z, as they existed in
July 1997.
(b) The note rate.
[2] The
Debtor next alleges that Eagle's disclosure of the Loan's "note rate"
was impermissible as likely to cause confusion to a borrower. Beneath the required Annual Percentage Rate ("APR") and
monthly payment disclosures, the HOEPA form stated: "Note: The note
rate of your loan is 13.99%. The annual percentage rate reflects the cost of
any prepaid finance charges that may be included in your loan." The
APR and monthly payment disclosures, printed above the statement, appeared in
regular type in an enumerated list.
[3] The
Defendants correctly argue that lenders are not prohibited from including
additional information on disclosure forms. Section 1632(a)
provides that the annual percentage rate and finance charge shall "be
disclosed more conspicuously than other terms, data, or information provided in
connection with a transaction...." 15 U.S.C. § 1632(a).
Section 1632(b)
further states that "[a]ny creditor or lessor may supply additional
information or explanation with any disclosures required under parts D and E of
this subchapter and, except as provided in sections 1637a(b)(3)
[FN7] and 1638(b)(1) [FN8] of this title, under this
part." 15 U.S.C. § 1632(b).
The HOEPA disclosure requirements set forth in § 1639 are
under the same subchapter and part [Part B-Credit Transactions] as section 1632.
FN7. Section 1637a sets forth disclosure requirements for open end consumer credit plans secured by a consumer's principal dwelling.
FN8. Section 1638(b) sets forth the requirements for the typical
TILA disclosures in a
residential mortgage transaction.
This is not a situation in which the borrower was given
information that directly contradicted other information, as in In re
Apaydin, when the borrowers received both a notice advising them of their
right to rescind with a form waiving that rescission right. Apaydin v. Citibank
Fed. Savings Bank (In re Apaydin), 201 B.R. 716, 723 (Bankr.E.D.Pa.1996). See also Rodash v. AIB Mortgage
Co., 16 F.3d
1142, 1147 (11th Cir.1994)(same). Neither did the lender label
two items identically. See Varner v. Century Finance
Co., 738 F.2d
1143, 1147-48 (11th Cir.1984)(Disclosure statement that labeled
two different amounts as the "loan fee" was determined to be in violation
of Regulation Z.)
Disclosure of the note rate, removed visually on the form from the
APR and monthly payment amount, and accompanied by a simple explanation of what
the APR denotes, does not rise to the level of confusion caused by the
disclosure infractions described in the cases discussed above. The APR,
appearing in the center of the disclosure document, is disclosed more
conspicuously than is the note rate. Rather than serving to highlight the
information, the display of the note rate and its juxtaposition to the APR
explanation, fixes its subordinate role--as if the note rate is a footnote--on
the disclosure document. See Mason v. General Fin.
Corp., 542 F.2d
1226, 1233 (4th Cir.1976)(Court
determined that "equal billing" of the federal TILA disclosures and the
state lending disclosures violated TILA and Regulation Z because it told the
borrower "more than he needs to know and more than he can possibly
understand.") The note rate does not contradict the APR, and both rates
are *549
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clearly labeled. The intent of
the disclosure requirement, to provide uniformity to assist consumers in
comparison shopping, is not undermined, since the APR and the monthly payment
are clearly and conspicuously disclosed on the form.
(c) The loan amount.
[4] Finally,
the Debtor argues that the "loan amount" of $44,250 on the HOEPA
disclosure form contradicted the "amount financed" of $39,896.34 on
the TILA form provided at closing, causing confusion. The loan amount set forth
on the HOEPA disclosure statement is the principal amount of the balloon note
signed by the Debtor. See Exhibit A to the Defendants' Mem. of Law. 12 C.F.R. § 226.32
does not require disclosure of the loan's principal amount, but, as discussed
above, Eagle was not prohibited from providing additional information in the
HOEPA disclosure form.
In Smith v. Anderson, 801 F.2d 661 (4th Cir.1986), the
court concluded that the lender did not provide information in a confusing
manner and did not violate TILA by stating different interest rates and
principal amounts on the note and in the truth-in-lending statement. The Smith
plaintiff argued that the principal amount in the note
should have matched the "amount financed" in the TILA disclosure
statement. However, the
Rather than being a deliberate attempt to deceive, ... [the lender's]
disclosures in the truth-in-lending statement served to supplement the
information provided in the note in the uniform manner required by federal law,
and to convey to the borrowers in understandable terms the true extent of their
obligations.
Smith, 801 F.2d at 664. The same
reasoning applies here to the difference between the loan amount on the HOEPA
disclosure document and the "amount financed" on the TILA disclosure
statement. Further, the Debtor received an itemization of the "amount
financed" (i.e., the principal amount of the loan minus the prepaid
finance charge) on the Good Faith Estimate Of Settlement Charges (See
Exhibit 3 to Jones' Deposition), provided at settlement, along with the TILA
disclosure form.
Eagle's HOEPA disclosure form included all required disclosures
under 15 U.S.C. § 1639
and 12 C.F.R. § 226.32.
For the reasons discussed above, Eagle's failure to disclose the balloon
payment and inclusion of additional information (i.e., the note rate and loan
amount) did not violate TILA and HOEPA as a matter of law.
The Debtor's motion for summary judgment as to Count I will be denied.
2. Count II-RESPA violations.
[5] In
the Complaint, the Debtor alleges that her sister referred her to Anthony
Jones, a mortgage loan broker, for assistance in obtaining a loan. Complaint, ¶
8. Jones ultimately arranged for the Debtor to obtain the Loan from Eagle.
No person shall give and no person shall accept any fee, kickback
or thing of value pursuant to any agreement or understanding, oral or
otherwise, that business incident to or part of a real estate settlement
service involving a federally *550
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related
mortgage loan shall be referred to any person.
12 U.S.C. § 2607(a). [FN9] There is no prohibition,
however, against payment for services actually rendered. 12 U.S.C. § 2607(c).
FN9. The mortgage is subject to section 2607 as a "federally related mortgage loan" within the meaning of 12 U.S.C. § 2602.
The Debtor argues that the broker fee "was not based on a
valid contract, was not in exchange for any services she
contracted to pay for, and bore no reasonable relationship to the value of any
'services' the broker could be said to have provided" to the Debtor or
Eagle. Debtor's Mem. of Law, p. 12. The Defendants dispute these allegations
and argue that issues of material fact preclude summary judgment on Count II.
When considering similar issues regarding broker fees in the case Newton v. United Co.
Fin. Corp., 24 F.Supp.2d 444,
463-(E.D.Pa.1998), the Court looked at whether the fees were paid
pursuant to a bona fide agreement between the borrower and the broker. Newton, 24 F.Supp.2d at 463-64. The
Debtor, citing to her affidavit, claims that she never agreed to pay Jones a
separate fee. Debtor's Mem. of Law, p. 14. The Debtor claims that any agreement
regarding Jones' fee was made between Jones and Eagle.
FN10. Both parties also cite to the transcript of Jones' deposition
in support of their positions
about whether the Debtor agreed to pay for Jones' services prior to
closing--the Debtor focusing on Jones' testimony that he may not have advised
the Debtor of the specific amount she would be charged, the Defendants focusing
on Jones' testimony that he told the Debtor that his fee would be based upon a
percentage of the loan, that percentage to be determined by "other
factors." See Jones Deposition, attached as Exhibit G to the
Debtor's Mem. of Law, p. 30 (the "Jones Deposition"). See also
Debtor's Mem. of Law, p. 14; Defendants' Mem. of Law, pp. 9-10. This also
underscores the existence of an outstanding factual issue.
Also important are the issues of whether Jones actually performed
services for the Debtor and, if so, whether the fee charged for those services
was "reasonably related" to the services performed. See Real Estate Settlement
Procedures Act (RESPA) Statement of Policy 1999-1 Regarding Lender Payments to
Mortgage Brokers, 64 Fed.Reg. 10080, 10084 (March 1, 1999) (the
"1999 RESPA Policy"). See also Newton, 24 F.Supp.2d at 463
(E.D.Pa.1998)(The Court concluded that a $700 broker fee was
bona fide compensation for services rendered by the broker and the plaintiffs
did not present any evidence that the amount of the fee was unreasonable).
For guidance on the issue of whether a broker performed actual
services to justify his fee, the 1999 RESPA Policy, issued
by the Department of Housing and Urban Development ("HUD"), discusses
a 1995 letter from HUD to the Independent Bankers Association of America
("IBAA") which sets forth a two-part inquiry. 64 Fed.Reg. 10085.
First, the IBAA letter identifies a non-exhaustive list of fourteen tasks
usually performed by a mortgage broker and states that HUD generally would be
satisfied that a broker performed *551
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adequate
services in connection with the loan if the broker took the borrower's loan
application information and performed at least five additional items on the
list. 64 Fed.Reg. at 10085. [FN11]
FN11. The fourteen tasks listed in the 1999 RESPA Policy are: (a) taking information from the borrower and filling out the application; (b) analyzing the prospective borrower's income and debt and pre-qualifying the prospective borrower to determine the maximum mortgage that the prospective borrower can afford; (c) educating the prospective borrower in the home buying and financing process, advising the borrower about the different types of loan products available, and demonstrating how closing costs and monthly payments could vary under each product; (d) collecting financial information (tax returns, bank statements) and other related documents that are part of the application process; (e) initiating/ordering VOEs (verifications of employment) and VODs (verifications of deposit); (f)
initiating/ordering requests
for mortgage and other loan verifications; (g) initiating/ordering appraisals;
(h) initiating/ordering inspections or engineering reports; (i) providing
disclosures (truth in lending, good faith estimates, others) to the borrower;
(j) assisting the borrower in understanding and clearing credit problems; (k)
maintaining regular contact with the borrower, realtors, lender, between
application and closing to appraise them of the status of the application and
gather any additional information as needed; (l ) ordering legal documents;
(m) determining whether the property was located in a flood zone or ordering
such service; and (n) participating in the loan closing. 64 Fed.Reg. at 10085.
Second, HUD would analyze a broker's "counseling type"
services to ensure a broker was not merely steering a borrower to a particular
lender. Id. HUD pointed out that it would be satisfied that meaningful
counseling occurred if it found that the broker: (1) gave the borrower the
opportunity to consider products from at least three different lenders; (2)
would receive the same compensation regardless of which lender's products were
ultimately selected; and (3) any payment for "counseling-type"
services is reasonably related to the services performed and not based on the
amount of loan business referred to a particular lender.
The Broker Agreement
signed by the Debtor at closing sets forth five tasks for Jones to complete. [FN12] The Debtor admits that in
addition to preparing the loan application, Jones ordered an appraisal,
maintained contact with the borrower and lender, and attended the closing. The
Defendants repeat the Debtor's list and add that Jones also may have negotiated
a settlement of one of the Debtor's outstanding debts. Jones Deposition, p.
36-37. It appears that Jones performed actual services in connection with
obtaining the Loan. However, whether Jones performed all of the tasks
identified in the Broker Agreement or performed sufficient tasks to meet the
guidelines established in the 1999 RESPA Policy is an unresolved issue of
material fact.
FN12. The Broker Agreement states: "I will provide the following services on a best effort basis to help you secure financing for the above referenced property: (1) Mortgage programs--provide explanations and prequalifications. (2) Application completion assistance. (3) Obtain, review, explain, and, if necessary help correct, your credit report. (4) Obtain a written conditional approval from a bona-fide, financially sound lender for your loan. (5) Help you to meet the terms of the commitment that we obtain." Exhibit F to Defendants' Mem. of Law.
Finally, the 1999 RESPA Policy states that "[t]he
determinative test under RESPA is the relationship of the
services, goods or facilities furnished to the total compensation received by
the broker." 64 Fed.Reg.
at 10085. When a payment to a broker is based on the value of
business transacted, it is evidence of an agreement for the referral of
business. 64 Fed.Reg. at 10086 n. 8.
"[T]he excess over the market *552
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rate
may be used as evidence of a compensated referral or an unearned fee in
violation of [12 U.S.C. § 2607(a) or
(b)] of RESPA." 64 Fed.Reg.
at 10086. Here, the Debtor has not identified any portion of the
pleadings or exhibits that demonstrate an absence of fact as to the
reasonableness of the fee charged by Jones. No evidence has been presented
regarding price structures and practices in similar transactions. [FN13]
FN13. "In analyzing whether a particular payment or fee bears a reasonable relationship to the value of the goods or facilities actually furnished or services actually performed, HUD believes that payments must be commensurate with that amount normally charged for similar services, goods or facilities. This analysis requires careful consideration of fees paid in relation to price structures and practices in similar transactions and in similar markets." 64 Fed.Reg. at 10086.
3. Count IV-Violations of state consumer protection laws.
[6] Count
IV of the Debtor's complaint alleges that Eagle's and Jones' conduct in
connection with the Loan transaction constituted an unfair or deceptive
practice in violation of the Pennsylvania Unfair Trade Practices and Consumer
Protection Law, 73 P.S. § 201-1
et seq. ("UDAP"). [FN14] Section 201-3 of UDAP
declares unlawful all "unfair or deceptive acts or practices," which
are defined in Section 201-2(4). A person who purchases good or services
primarily for personal, family or household purposes and thereby suffers an
ascertainable loss of money or property as a result of the employment of an
unfair or deceptive act or practice may bring a private action to recover
actual damages. 73 P.S. § 201-9.2(a).
A court may, in its discretion, award up to three times the actual damages
sustained.
FN14. This statute is frequently referred to as "UDAP" since it regulates "unfair and deceptive acts and practices." See 73 P.S. § 201- 2(4); In re Murray, 239 B.R. 728, 729 (Bankr.E.D.Pa.1999).
The Debtor alleges that Eagle's and Jones' deceptive conduct fell
within the following subsections of Section 201 2(4):
(v) Representing that goods or services have ... benefits or
qualities that they do not have ...;
....
(xxi) Engaging in any other fraudulent or deceptive conduct which
creates a likelihood of confusion or of misunderstanding.
73 P.S. § 201-2(4)(v),
(xxi). The Debtor alleges that two acts, in particular, violated
UDAP. First, the Debtor alleges that the payment of Jones' broker fee violated
a provision in UDAP that covers certain sales contracts (73 P.S. § 201-7)
and the Credit Services Act (73 P.S. § 2181 et seq.)
(the "CSA") because Jones failed to give the Debtor a written broker
agreement that included notice of her right to cancel the agreement as required
by the foregoing sections of UDAP and the CSA. Second, the Debtor alleges that
Jones and Eagle violated UDAP by misleading the Debtor into entering into a
loan which contained terms that were wholly disadvantageous to her. The
Defendants respond that (1) the state consumer protection laws regarding broker
agreements cited by the Debtor do not apply to the Loan and, even if the laws
were applicable, the lender can not be held liable for the broker's failure to
comply with those *553
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laws;
and (2) neither the broker nor the lender misled the Debtor about the terms of
the Loan or, in the alternative, issues of material fact still exist regarding
the type of financing sought by the Debtor, her reasons
for requesting a loan, and her understanding of the loan terms.
a. UDAP Section 201-7.
[7] The
Debtor alleges that Eagle and Jones violated Section 201 7 of UDAP by failing
to provide her with a timely written agreement about the broker fee which
included notice of her right to cancel the agreement within three days. 73 P.S. § 201 7. Section 201-7
states:
(v) Where good or services having a sale price of twenty-five
dollars ($25) or more are sold or contracted to be sold to a buyer, as a result
of, or in connection with, a contact with or call on the buyer or resident at
his residence either in person or by telephone, that consumer may avoid the
contract or sale by notifying, in writing, the seller within three full
business days following the day on which the contract or sale was made and by
returning or holding available for return to the seller, in its original
condition, any merchandise received under the contract or sale.
73 P.S. § 201-7(a).
This provision further requires that, at the time the contract is signed, the
buyer must receive written notice of her right to cancel the transaction within
three days. 73 P.S. § 201-7(b), (d).
The Defendants argue that the agreement between the Debtor and
Jones does not fall within the terms of Section 201-7(a)
because the agreement was not "as a result of, or in connection with, a
contact with or call on the buyer or resident at his residence either in person
or by telephone." [FN16] The Debtor,
however, alleges that any agreement with Jones "resulted from a contact
with [the Debtor] at her residence by telephone." [FN17] Debtor's Mem. of Law, p. 19.
She cites to Jones' deposition in support of this allegation, in which he
states that the contact started when he received a telephone call from the
Debtor (See Jones' Deposition, p. 9) and argues that the door-to-door
sales provision was "written broadly to encompass most consumer
transactions that do not take place in a store or retail business."
Debtor's Mem. of Law, p. 19. The Debtor does not allege that any further
meetings or negotiations with Jones took place at her residence.
FN16. This provision is often referred to as the "door-to-door sales provision" of Section 201-7, even though it the language includes solicitations made by telephone.
FN17. There may be an issue of material fact concerning whether the Debtor made the initial telephone call to Jones from her residence. Although the Debtor alleges that this fact is not contested, the Defendants denied the relevant allegations in the Debtor's complaint (¶ 33) and there is nothing in Jones' deposition to indicate that the Debtor made the call from her residence.
Even assuming that the
Debtor contacted Jones from her residence (see n. 17, supra),
this single contact, initiated by the buyer, is not enough to bring the
contract within the door-to-door sales provision of Section 201-7.
In Saler v. Hurvitz (In re
Saler), 84 B.R. 45
(Bankr.E.D.Pa.1988), the court rejected a debtor's argument that
"the statute is broadly drawn and should embrace any transaction where
either a 'contact with' or 'call' at the obligor's residence played any part in
the transaction." In Saler, the Court held that an in-home
appraisal, which was the only contact at the debtor's residence in connection
with a mortgage loan, did not bring the transaction within Section 201-7,
writing:
*554
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However, in interpreting § 201-7, we
must recognize that the breadth of its wording is meant to prevent the use of
devices to circumvent its underlying intention to provide protection in a broad
range of "door-to-door" sales. It is not meant to open up every
transaction in which a seller of goods or services has any sort of contact at
all with the buyer at his residence to the scope of § 201-7. If we
adopted the Debtor's interpretation, practically every home sale transaction and
refinancing, most of which would require an in-home appraisal as a condition
for consummation, would be within the scope of § 201-7. Also,
any home improvement contractor who surveyed the scene of his projected tasks
would be within its scope, even if all of the documentation were honestly and
carefully put forth and executed in a setting other than
in the customer's home. We do not believe that the legislature could have
possibly envisioned such frankly bizarre consequences to flow from the
enactment of § 201-7.
Saler, 84 B.R. at 49. See Lou Botti Construction v.
Harbulak, 760
A.2d 896, 898 (Pa.Super.2000)(stating that the Saler
Court's interpretation of Section 201-7
was "instructive.")
The Court in Commonwealth ex rel.
Zimmerman v. Nickel, 26 Pa.
D. & C.3d 115, 1983 WL 286 (C.C.P. Mercer County, 1983), also
declined to construe section 201-7
broadly, stating:
Plaintiff invites the court to broadly interpret the language of section 201-7
to include contracts preceded by a remote contact at the residence of the buyer
by mail. This court declines that invitation. To adopt such an interpretation
would grant the right of rescission under this act to every contract which
ultimately resulted from advertising received in the home, be it by mail,
newspaper, flyer or even though radio or television if plaintiff's logic were carried
to its natural conclusion. Obviously, this could not have been the intent of
the legislature in enacting section 201-7.
Had they so intended, it could have easily been expressly set forth.
Nickel, 26 Pa. D. & C.3d at 125-126.
In Burke v. Yingling, 446 Pa.Super. 16, 666 A.2d 288 (1995),
the Superior Court of Pennsylvania concluded that a sale of a custom audio/visual
system for the buyer's home fell within the door-to-door
sales provision of Section 201-7
because the plain language of the statute protects all buyers when the seller
"makes a contact or call on the buyer at his residence." It is true
that the plain language of the statute does not expressly exclude transactions
"where the initial contact was made by the buyer." Burke, 446 Pa.Super. at 23, 666 A.2d at 292.
But, in Burke, the seller "expressly admitted ... that Seller
engaged in repeated contacts with Buyer at his home and that the sale of the
audio visual system either resulted from or was consummated in connection with
those contacts." Burke, 446 Pa.Super. at 21-22, 666 A.2d at 291.
Although the fact that the Debtor initiated the contact with Jones
may not automatically exclude application of Section 201 7, the Debtor
has not alleged that Jones contacted or called upon her at her residence. Here,
the Debtor made a single initial telephone inquiry from her residence. All
other contacts took place away from her home. Without evidence of other
contacts-- made by the seller--at the buyer's residence, a single contact by
the buyer from his or her residence will not bring a transaction into the scope
of Section 201-7.
Accordingly, I conclude that the Debtor's allegations are not sufficient to
place the Broker Agreement within the scope of Section 201-7.
*555
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b. The Credit Services Act.
[8] The
Debtor next argues that the payment to Jones also violated the Credit
Service Act, 73 P.S. § 2181 et seq.,
(the "CSA"). The CSA is a
"Credit services organization."
(1) A person who, with respect to the extension of credit by
others, sells, provides or performs or represents that he or she can or will
sell, provide or perform any of the following services in return for the
payment of money or other valuable consideration:
(i) Improving a buyer's credit, record, history or rating.
(ii) Obtaining an extension of credit for a buyer.
(iii) Providing advice or assistance to a buyer with regard to
either subparagraph (i) or (ii).
73 P.S. § 2182.
Subsection (2) of the definition of a credit services organization sets forth
exceptions to the rule, but neither the Debtor nor the Defendants allege that
any of the exceptions apply.
The CSA requires a credit services organization to provide buyers
with an information sheet about its services and fees prior to execution of a
contract or prior to receipt of any money. 73 P.S. §§ 2184,
2185. The
Debtor alleges that Jones failed to do so. The CSA also
requires a contract between a buyer and a credit services organization to
include certain information, including notice of the buyer's right to cancel
the contract within five days of signing. 73 P.S. § 2186.
The Debtor alleges that the Broker Agreement did not contain the terms set
forth in 73 P.S. § 2186;
in particular, the Broker Agreement did not contain notice of her right to
cancel.
The Defendants do not contest the Debtor's assertion that Jones is
a credit service organization subject to the requirements of the CSA. Instead,
the Defendants argue that Eagle cannot be held liable for Jones' violation of
the CSA and, therefore, they cannot be liable as Eagle's assignees. In
response, the Debtor argues that lenders can be held liable under UDAP for
knowingly funding a transaction that violates a consumer protection law,
relying upon Heastie v. Community
Bank of Greater Peoria, 690
F.Supp. 716, 722 (N.D.Ill.1988) and Iron and Glass Bank v.
Franz, 9 Pa. D & C 3d
419, 1978 WL 357 (CCP, Allegheny County 1978).
The Defendants argue that, even assuming the Debtor's statement of
the law is correct, there is an issue of material fact as to whether Eagle
funded the loan transaction, which included payment of Jones' fee, knowing
that payment of the broker fee to Jones violated the CSA. However, at his
deposition, Jones testified that Eagle prepared the Broker Agreement and had
the Debtor sign the agreement at settlement. Jones Deposition, p. 46-47.
Therefore, Eagle knew or should have known of the
contract's contents and deficiencies.
In responding to the Debtor's Summary Judgment Motion, the
Defendants "... may not rest upon the mere allegations or denials of the
adverse party's pleading, but must, by affidavits or as otherwise, set forth
specific facts showing that there is a genuine issue for trial." Fed R. Civ. P. 56(e).
The Defendants "... must do more than simply show that there is some
metaphysical doubt as to the material facts." *556
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Matsushita, 475 U.S. at 586, 106 S.Ct. 1348.
Their argument that an issue of fact still exists because no one from Eagle has
been deposed or offered testimony is not sufficient to satisfy their burden in
responding to the Debtor's Summary Judgment Motion.
[9] [10] In
this case, Jones falls within the CSA's definition of a credit services
organization because he assisted the Debtor in obtaining an extension of credit
from a third party lender in return for compensation. Therefore, Jones should
have provided the Debtor with an information sheet that complied with 73 P.S. §§ 2184
and 2185, and the
Broker Agreement should have contained the terms required by 73 P.S. § 2186.
The fee agreement, however, did not include notice of a right to cancel the
agreement. Because Eagle prepared the deficient Broker Agreement and presented
it to the Debtor to sign at settlement, Eagle, itself, violated the CSA. [FN18]
FN18.
Therefore, there is no need to determine whether the Iron
and Glass Bank
decision is applicable to this case.
The CSA expressly provides that a violation of the CSA shall be
deemed to be a violation of UDAP. 73 P.S. § 2190(a).
Under HOEPA, the Defendants are subject to any claims that could have been
asserted against Eagle, the original lender. 15 U.S.C. § 1641(d).
Accordingly, summary judgment will be granted in favor of the Debtor on her
claim against the Defendants based upon UDAP and the CSA.
c. UDAP Section 201-2(4).
[11] The
Debtor argues that Jones and Eagle violated UDAP by misleading her into
entering into a loan which contained terms that were wholly disadvantageous to
her. In particular, she alleges that they did not advise her sufficiently about
the balloon payment, the refinancing of her low interest mortgages, and the
broker fee. She claims she was not aware of many of these terms until the Loan
closing, although they should have been disclosed or discussed prior to
closing. [FN19] Therefore, she asserts that
Jones' and Eagles' conduct constituted "unfair and deceptive acts or
practices" as defined in 73 P.S. § 201-2(4)
by "representing that good or services have ... benefits or qualities that
they do not have" (§ 201-2(4)(v))
and "engaging in ... fraudulent or deceptive conduct which creates a
likelihood of confusion or misunderstanding" (§ 201-2(4)(xxi)).
FN19. The Debtor claims that Eagle should have provided her with the good faith estimate of settlement costs three days after her initial application. 24 C.F.R. § 3500.7. Also, as discussed previously, she argues that the balloon payment should have been disclosed in the HOEPA disclosure form (12 C.F.R. § 226.32) and the broker fee should have been explained in an information sheet (73 P.S. § 2184).
The Debtor argues that her case is similar to Barker, supra,
in which the broker was held to have violated § 201 2(4)(xxi)
by failing to disclose the detrimental effect of replacing a loan with a 9%
interest rate with a loan with a 17.99% rate; failing to advise the debtor that
the loan amount was $19,500 when the debtor requested a loan for only $10,000;
and failing to adequately disclose the balloon payment. [FN20] Barker, 251 B.R. at 261- 62. However, the Barker
case differs from the one at bar in several respects. After trial, the Barker
court found the debtor's testimony credible that she never requested
refinancing her other obligations. Barker, 251 B.R. at 255. *557
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Here,
what the Debtor requested remains a genuine issue of material fact, since Jones
testified that she asked to consolidate and pay off other debts. Compare
Debtor's Affidavit, ¶ 3, with Deposition pp. 10, 17, 18, 48. In Barker,
the broker did not advise the debtor of a balloon payment,
which was not disclosed on any documentation received by the debtor. Barker, 251 B.R. at 258. Here, the Debtor
does not allege that she never realized there was a balloon payment, just that
she "did not find out about this feature until the loan closing."
Debtor's Affidavit ¶ 4. The broker in Barker also held himself out as
having expertise in the mortgage industry, thus was found to have committed a
material misrepresentation when he failed to advise the debtor of the
detrimental nature of the loan transaction. Barker, 251 B.R. at 258. In this case, the
Debtor did not allege a basis for Jones owing a fiduciary duty, or allege any
misrepresentation of what services he would perform or that the Debtor was an
unsophisticated borrower.
FN20. In Barker, the broker failed to "adequately disclose to the uneducated debtor that executing a Balloon Note would result in a final large lump sum payment;" and failed "to disclose or estimate the amount of the lump sum payment in the Balloon Note." Barker, 251 B.R. at 261-62.
The Debtor also suggests that the UDAP violations can be inferred
from the "gross or subtle unfairness of a loan's transaction's provisions
as they affect the borrower." Debtor's Mem. of Law, p. 24. The Debtor
cites to Besta v. Beneficial
Loan Co. of Iowa, 855 F.2d 532,
536 (8th Cir.1988) for support of her position
that a loan can be deemed unfair "if no reasonable person, being apprised
fully of the financing terms would have accepted them." Debtor's Mem. of
Law, p. 24. The Besta Court, however, did not infer unfairness from
reviewing the loan terms, but examined the facts surrounding the broker's and
borrower's conduct in making the loan and held that the broker's failure to
advise the borrower of better repayment alternatives "deprived her of fair
notice and amounted to unfair surprise," thereby violating the Iowa
Consumer Credit Code. Besta, 855
F.2d at 536.
The Defendants respond to the Debtor's UDAP claim by arguing that
Jones and Eagle did not mislead the Debtor as to the terms of the Loan. They
argue that the Debtor was made aware of the balloon payment at closing by the
TILA Disclosure Statement and due to the fact that the note was clearly
entitled "Balloon Note." [FN21] They also cite to Jones'
deposition, in which he testified that he reviewed the loan preapproval form
with her. Jones Deposition, p. 27.
FN21. However, the Balloon Note does not state the amount of the final balloon payment.
The Defendants also argue that the Debtor was not misled into
refinancing her low interest loans, because Jones testified that the
refinancing was done on her request. Jones Deposition, pp.
67-68. Jones' testimony also indicates that the Debtor was in default on her
payments and sought the Loan, at least in part, to "get caught up."
Though the terms of the Loan seem harsh, the outstanding issues of
material fact regarding the type and amount of financing sought by the Debtor
and whether the Loan terms were sufficiently explained to the Debtor prevent
entry of summary judgment on this count.
In summary, the Debtor's Summary Judgment Motion with respect to
Count IV is resolved as follows:
(i) Claims under 73 P.S. § 201-7:
I conclude that
73 P.S. § 201-7
is not applicable to this transaction and, *558
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therefore, summary judgment is
denied;
(ii) Claims under 73 P.S. §§ 2181 et seq.: I conclude that
the Debtor is entitled to summary judgment on her CSA claim.
(iii) Claims under 73 PS § 201-2(4)(v), (xxi):
I conclude that issues of material fact prevent summary judgment on these
claims.
An appropriate order follows.
ORDER
AND
NOW, this 25th day of March, 2003,
upon consideration of the Motion for Summary Judgment by Helen Lewis (the
"Debtor"), the memoranda of law submitted by both parties, and the
April 11, 2002 hearing, and, for the reasons set forth in the accompanying
Memorandum Opinion,
AND
having concluded that:
a. the Debtor is not entitled to summary judgment on Count I as a
matter of law;
b. the Debtor is not entitled to summary judgment on Count II as
genuine issues of material fact exist;
c. the Debtor is not entitled to summary judgment on her 73 P.S. § 201-7
claim under Count IV as a matter of law;
d. the Debtor is not entitled to summary judgment on her 73 PS § 201- 2(4)(v),
(xxi) claims under Count IV as genuine issues of material fact
exist; and
e. the Debtor is entitled to summary judgment on her 73 P.S. §§ 2182-2188 claim
under Count IV;
it is hereby ORDERED that the Debtor's Motion for Summary
Judgment is DENIED as to Counts I and II, but GRANTED, in part,
as to Count IV, as described above.
A pretrial conference will be held on April 10, 2003 at 10:00
a.m. in Bankruptcy Courtroom No. 1, Robert N.C. Nix Federal Building &
Courthouse, 900 Market Street, 2nd Floor, Philadelphia,
Pennsylvania, at which time and place counsel shall be prepared to address any
remaining pre-trial needs, which issues, including those of damages, remain for
trial, and to set a trial date.
In re
E.D.
Pennsylvania.
In re Maxine B. BELL, Debtor.
Maxine B. Bell, and Edward Sparkman, Trustee, Plaintiffs,
v.
Parkway Mortgage, Inc., and Stephen Flacco, t/a Wharton Investments Network,
Defendants.
Bankruptcy No. 01-14420 KJC.
Adversary No. 01-392 KJC.
Background: Chapter 13 debtor-borrower and trustee filed adversary complaint
against lender and mortgage broker, asserting various claims under federal and
state law in connection with an alleged predatory mortgage loan transaction.
Holdings:
The Bankruptcy Court, Kevin J. Carey,
J., held that:
(1) because the points and fees
payable by debtor at or before closing did not exceed eight percent of the
total loan amount, the loan transaction was not subject to the Home Ownership
Equity Protection Act (HOEPA);
(2) debtor did not receive proper
notice of her right to rescind, as required by the Truth in Lending Act (TILA),
and so she was entitled to rescind the loan;
(3) although mortgage document was
not notarized in her presence, debtor did not establish fraud under
Pennsylvania law and, thus, she could not avoid the mortgage pursuant to the
Bankruptcy Code;
(4) debtor failed to establish that
broker engaged in fraud;
(5) absent evidence of a
confidential relationship between broker and debtor, debtor failed to establish
her claims for breach of fiduciary duty;
(6) broker violated the
Pennsylvania Credit Services Act;
(7) for broker's violation of the
Credit Services Act, debtor was entitled to damages consisting of the total of
the broker's fee, the application fee, and the yield spread premium;
(8) although debtor's loan was
subject to the Pennsylvania Home Improvement Finance Act (HIFA), no award of
actual damages flowing from the improper imposition of finance charges was
appropriate because the loan would be rescinded;
(9) the court would not condition
rescission on debtor's immediate tender of repayment to lender but, instead,
debtor could repay the debt in full over the life of her Chapter 13 plan;
(10) lender was liable to debtor
for statutory damages of $2,000.00 for its TILA notice violation; and
(11) lender's failure to honor
debtor's valid rescission request gave rise to a separate award of statutory
damages, in the amount of $200.00.
Ordered accordingly.
[1] KeyCite Notes
92B Consumer
Credit
92BII Federal
Regulation
92BII(B)
Disclosure Requirements
92Bk50 k. In
General. Most Cited Cases
Congress intended the Truth in Lending Act (TILA) to assure a
meaningful disclosure of credit terms so consumers are not misled about the
costs of financing. Truth in Lending Act, § 102 et seq., as amended, 15 U.S.C.A. § 1601
et seq.
[2] KeyCite Notes
92B Consumer
Credit
92BII Federal
Regulation
92BII(B)
Disclosure Requirements
92Bk50 k. In
General. Most Cited Cases
Home Ownership Equity Protection Act (HOEPA) is an amendment to
the Truth in Lending Act (TILA) that requires lenders to make additional
disclosures beyond those that are required by TILA for certain high-cost
mortgages. Truth in Lending Act, §§ 102 et seq., 129 et seq., as amended, 15 U.S.C.A. §§ 1601
et seq., 1639 et seq.
[3] KeyCite Notes
92B Consumer
Credit
92BII Federal
Regulation
92BII(A) In
General
92Bk33 Persons,
Businesses, and Transactions Subject to Regulations
92Bk33.1 k. In
General. Most Cited Cases
There are two steps in determining whether a loan falls within the
Home Ownership Equity Protection Act (HOEPA): (1) determining the amount of
“points and fees,” and (2) determining whether those points and fees exceed
eight percent of the total loan amount. Truth in Lending Act, §§ 103(aa), 129
et seq., as amended, 15 U.S.C.A. §§ 1602(aa),
1639 et seq.; 12 C.F.R. § 226.32(b)(1).
[4] KeyCite Notes
92B Consumer
Credit
92BII Federal
Regulation
92BII(A) In
General
92Bk33 Persons,
Businesses, and Transactions Subject to Regulations
92Bk33.1 k. In
General. Most Cited Cases
In calculating “points and fees,” for purposes of determining
whether a loan falls within the Home Ownership Equity Protection Act (HOEPA),
real estate related fees listed in Regulation Z, which are normally excluded
from the finance charge, will be included in a points and fees calculation if
(1) the charges are not reasonable, (2) the lender receives, directly or
indirectly, compensation from the charges, or (3) the charges are paid to the
lender's affiliate. Truth in Lending Act, §§ 103(aa), 129 et seq., as amended, 15 U.S.C.A. §§ 1602(aa),
1639 et seq.; 12 C.F.R. §§ 226.4(c)(7),
226.32(b)(1).
[5] KeyCite Notes
92B Consumer
Credit
92BII Federal
Regulation
92BII(A) In
General
92Bk33 Persons,
Businesses, and Transactions Subject to Regulations
92Bk33.1 k. In
General. Most Cited Cases
Overnight delivery fee of $45.00 paid by borrower to title company
would not be included in calculating “points and fees,” for purposes of
determining whether home mortgage loan fell within the Home Ownership Equity
Protection Act (HOEPA); fee was not required to be disclosed as a “finance
charge” and, to the extent it could be deemed to be a real estate related fee
incurred for title insurance purposes, fee was reasonable, fee was less than
that usually charged, and fee was not paid to lender. Truth in Lending Act, §§
103(aa), 129 et seq., as amended, 15 U.S.C.A. §§ 1602(aa),
1639 et seq.; 12 C.F.R. §§
226.4(c)(7)(i), 226.32(b)(1).
[6] KeyCite Notes
92B Consumer
Credit
92BII Federal
Regulation
92BII(A) In
General
92Bk33 Persons,
Businesses, and Transactions Subject to Regulations
92Bk33.1 k. In
General. Most Cited Cases
Copying fee of $30.00 paid by borrower to title company would not
be included in calculating “points and fees,” for purposes of determining
whether home mortgage loan fell within the Home Ownership Equity Protection Act
(HOEPA); fee was a closing agent charge that was not required by lender, nor
did lender retain a portion of the fee. Truth in Lending Act, §§ 103(aa), 129
et seq., as amended, 15 U.S.C.A. §§ 1602(aa),
1639 et seq.; 12 C.F.R. § 226.32(b)(1).
[7] KeyCite Notes
92B Consumer
Credit