Tennessee Credit Repair Law
TN ST T. 47,
Part 10.
Credit Services Businesses
§ 47-18-1001. Short
title
This part shall be known and may be cited as the "Tennessee
Credit Services Businesses Act."
§ 47-18-1002.
Definitions
As used in this part, unless the context otherwise requires:
(1) "Attorney general" means the office of the attorney
general and reporter;
(2) "Consumer" means any individual who is solicited to
purchase or who purchases the services of a credit services business;
(3)(A) "Consumer
report" means any written, oral, or other communication of any information
by a consumer reporting agency bearing on a consumer's credit worthiness,
credit standing, credit capacity, character, general reputation, personal
characteristics, or mode of living, which is furnished or is used or expected
to be used or collected in whole or in part for the purpose of serving as a
factor in establishing the consumer's eligibility for:
(i) Credit or insurance to be used primarily for personal, family, or household purposes;
(iii) Other purposes which
shall be limited to the following circumstances:
(a) In response to the
order of a court having jurisdiction to issue the order;
(b) In accordance with
the written instructions of the consumer to whom the report relates; or
(c) To a person which
the agency has reason to believe:
(1) Intends to use the information in connection with a
credit transaction involving the consumer on whom the information is to be
furnished and involving the extension of credit to or review or collection of
an account of, the consumer;
(2) Intends to use the information for employment purposes;
(3) Intends to use the information in connection with the
underwriting of insurance involving the consumer;
(4) Intends to use the information in connection with a
determination of the consumer's eligibility for a license or other benefit
granted by a governmental instrumentality required by law to consider an
applicant's financial responsibility or status; or
(5)
Otherwise has a legitimate business need for the information in connection with
a business transaction involving the consumer.
(B) "Consumer report"
does not include:
(i) Any report containing information
solely as to transactions or experiences between the consumer and the person
making the report;
(ii) Any authorization or
approval of a specific extension of credit directly or indirectly by the issuer
of a credit card or similar device; or
(iii) Any report in which a
person who has been requested by a third party to make a specific extension of
credit directly or indirectly to a consumer conveys the person's decision with
respect to the request, if the third party advises the consumer of the name and
address of the person to whom the request was made, and the person makes the
disclosures to the consumer as to the exact nature of the request and the
effect of the report on its decision to extend credit.
(4)(A) "Consumer reporting agency" means any person who,
for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages
in whole or in part in the practice of assembling or evaluating consumer credit
information or other information on consumers for the purpose of furnishing
consumer reports to third parties, and who uses any means or facility of
commerce for the purpose of preparing or furnishing
consumer reports.
(B) "Consumer reporting agency" does not include a private detective or investigator licensed under the provisions of title 62, chapter 26.
(5)(A) "Credit
services business" means any person who, with respect to the extension of
credit by others, sells, provides, or performs, or represents that such person
can or will sell, provide, or perform any of the following services in return
for the payment of money or other valuable consideration:
(i) Improving a consumer's credit record, history, or rating;
(ii) Obtaining an extension of
credit for a consumer; or
(iii) Providing advice or
assistance to a consumer with regard to either (i) or (ii) of this subdivision
(5)(A).
(B) "Credit services
business" does not include:
(i) The making, arranging, or
negotiating directly for a loan or extension of credit under the laws of this
state or the
(ii) Any bank, trust company,
savings bank, or savings institution whose deposits or accounts are eligible
for insurance by the federal deposit insurance corporation or any credit union
organized and chartered under the laws of this state or the
United States;
(iii) Any nonprofit organization
exempt from taxation under Section 501(c)(3) of the Internal Revenue Code (26 U.S.C. § 501(c)(3));
(iv) Any person licensed as a
real estate broker by this state where the person is acting within the course
and scope of that license;
(v) Any person licensed to
practice law in this state where the person renders services within the course
and scope of that person's practice as a lawyer;
(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 that regulation; or
(vii) Any consumer reporting
agency as defined in the Federal Fair Credit Reporting Act (15 U.S.C. §§ 1681-1681t).
(6) "Extension of credit" means 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;
(7) "File," when used in connection with information on
any consumer, means all of the information on that consumer recorded and
retained by a consumer reporting agency regardless of how
the information is stored;
(8) "Investigative consumer report" means a consumer
report or portion of it in which information on a consumer's character, general
reputation, personal characteristics, or mode of living is obtained through
personal interviews with neighbors, friends, or associates of the consumer reported
on or with others with whom the consumer is acquainted, or who may have
knowledge concerning any items of information. However, the information does
not include specific factual information on a consumer's credit record obtained
directly from a creditor of the consumer or from a consumer reporting agency,
when the information was obtained directly from a creditor of the consumer or
from the consumer; and
(9) "Person" includes an individual, corporation,
government or governmental subdivision or agency, business trust, estate,
trust, partnership, association, two (2) or more persons having a joint or
common interest, and any other legal or commercial entity.
§ 47-18-1003. Unlawful
activities
A credit services business, and its salespersons, agents and
representatives, and independent contractors who sell or attempt to sell the
services of a credit services business, 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 that the credit services
business has agreed to perform for or on behalf of the consumer, including all
representations made orally or in writing. "Full and complete
performance" means fulfillment of all items listed in the contract and
other solicitations or communications to consumers;
(2) Charge or receive any money or other valuable consideration
solely for referral of the consumer to a retail seller or to any other credit
grantor who will or may extend credit to the consumer, if the credit that is or
will be extended to the consumer is upon substantially the
same terms as those available to the general public;
(3) Make, or counsel or advise any consumer to make, any statement
that 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
reporting agency or to any person who has extended credit to a consumer or to
whom a consumer is applying for an extension of credit, with respect to a
consumer'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 business 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 business; or
(5) Create, or assist or advise the consumer to create a new
credit record by using a different name, address, social
security number, or employee identification number;
(6) Provide, in any manner, the services of a credit services
business within this state, without registering a bond consistent with the
provisions of § 47-18-1011;
(7) Remove, assist or advise the consumer to remove or otherwise
alter adverse information from the consumer's credit record which is accurate
or not obsolete;
(8) Create, assist or advise the consumer to request that positive
information be inserted or included on the consumer's credit record which is
false, inaccurate or obsolete;
(9) Use a program or plan which uses or employs installment
payments featuring payments charged directly to a credit
card prior to full and complete performance of the services that the credit
services business has agreed to perform for or on behalf of the consumer; or
(10) Engaging in any violation of the federal Consumer Credit
Protection Act.
§ 47-18-1004. Information
statement
(a) Before the execution of a contract or agreement between a
consumer and a credit services business or the receipt by the credit services
business of any money or other valuable consideration, whichever occurs first,
the credit services business shall provide the consumer with an information
statement in writing containing all of the information required under § 47-18-1005.
(b) The credit services business shall maintain on file or
microfilm for a period of two (2) years from the date of the consumer's
acknowledgement an exact copy of the information statement personally signed by
the consumer acknowledging receipt of a copy of the information statement.
§ 47-18-1005.
Information statement; contents
The information statement required under § 47-18-1004 shall include all of the following:
(1)(A) A complete and
accurate statement of the consumer's right to review any file on the consumer
maintained by any consumer reporting agency, and the right of the consumer to
receive a copy of a consumer report containing all information in that file as
provided under the Federal Fair Credit Reporting Act (15 U.S.C. § 1681g);
(B) A statement that a copy of the consumer report containing all information in the consumer's file will be furnished free of charge by the consumer reporting agency, if requested by the consumer within thirty (30) days from receipt of the consumer's request; and
(C) A statement that a nominal
charge, not to exceed eight dollars ($8.00), may be imposed on the consumer by
the consumer reporting agency for a copy of the consumer
report containing all information in the consumer's file, if the consumer has
not been denied credit within sixty (60) days from receipt of the consumer's
request.
(2) A complete and accurate statement of the consumer's right to
dispute the completeness or accuracy of any item contained in any file on the
consumer that is maintained by any consumer reporting agency, as provided under
the Federal Fair Credit Reporting Act (15 U.S.C. § 1681(i));
(3) A complete and detailed description of the services to be
performed by the credit services business for or on behalf of the consumer, and
the total amount the consumer will have to pay, or become obligated to pay, for
the services;
(4)(A) Name and address
of the surety company which issued the bond in accordance with § 47-18-1011;
(B) A statement explaining the consumer's right to proceed against the bond; and
(5) A complete and accurate statement of the availability of
non-profit credit counseling.
§ 47-18-1006. Contract
requirements; notice of cancellation
(a) Every contract between a consumer and a credit services
business for the purchase of the services of the credit services business shall
be in writing, dated, signed by the consumer, and shall include all of the
following:
(1) A conspicuous statement in size equal to at least ten (10)
point bold type, in immediate proximity to the space reserved for the signature
of the consumer, as follows:
"You, the buyer, may cancel this contract at any time prior to twelve o'clock midnight (12:00) of the fifth business 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 consumer, whether to the
credit services business or to some other person;
(3) A complete and
detailed description of the services to be performed and the results to be
achieved by the credit services business for or on behalf of the consumer,
including all guarantees and all promises of full or partial refunds and a list
of the adverse information appearing on the consumer's credit report that the
credit services business expects to have modified; and
(4) The principal
business address of the credit services business and the name and address of
its agent in this state authorized to receive service of process.
(b)(1) 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 ten (10) point bold type the
following statement:
"NOTICE OF CANCELLATION"
You may cancel this contract, without any penalty or obligation, at any time prior to twelve o'clock midnight (12:00) of the fifth business day after the date the contract is signed.
If you cancel, any payment made by you under this contract will be
returned within ten (10) 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 twelve o'clock midnight (12:00) __________ (Date)
I HEREBY CANCEL THIS TRANSACTION.
__________ ______________________________
Date (Buyer's Signature)
(2) A copy of the fully
completed contract and all other documents the credit services business
requires the consumer to sign shall be given by the credit services business to
the consumer at the time they are signed.
§ 47-18-1007.
Violations; waivers; burden of proving exemption
(a) Any breach by a credit services business of a contract under
this part, or of any obligation arising under it, shall constitute a violation
of this part.
(b) Any contract for services from a credit services business that
does not comply with the applicable provisions of this part shall be void and
unenforceable as contrary to the public policy of this state.
(c) Any waiver by a
consumer of any of the provisions of this part shall be deemed void and
unenforceable by a credit services business as contrary to public policy of
this state, and any attempt by a credit services business to have a consumer
waive rights given by this part shall constitute a violation of this part.
(d) In any proceeding involving this part, the burden of proving
an exemption or an exception from the definition is upon the person claiming
it.
§ 47-18-1008. Damages;
private actions
(a) In any private action, any credit services business, which
willfully fails to comply with any requirement imposed under this part with
respect to any consumer, is liable to the consumer in an amount equal to the
sum of:
(1) Any actual damages
sustained by the consumer as a result of the failure; or any amount paid by the
person to the credit services business whichever is greater.
This remedy is supplemental to any other remedy contained within
this chapter.
(2) Such amount of
punitive damages as the court may allow.
(b) In any private
action, any credit services business which is negligent in failing to comply
with any requirement imposed under this part with respect to any consumer is
liable to that consumer in an amount equal to the sum of any actual damages
sustained by the consumer as a result of the failure.
§ 47-18-1009.
Limitation of actions
A private action to enforce any liability created under this part
may be brought within two (2) years from the date on which the liability
arises, except that where a defendant has materially and willfully
misrepresented any information required under this part to be disclosed to a
consumer, and the information so misrepresented is material to the
establishment of the defendant's liability to that consumer under this part,
the action may be brought at any time within two (2) years after discovery by
the consumer of the misrepresentation. No action brought by the attorney
general and reporter shall be subject to the limitation of actions contained
herein.
§ 47-18-1010.
Prohibited practices; attorney general instituting proceedings
(a) A violation of this
part constitutes a violation of the Tennessee Consumer Protection Act, compiled
at part 1 of this chapter. For the purpose of application of the Tennessee
Consumer Protection Act, any violation of the provisions of this part shall be
construed to constitute an unfair or deceptive act or practice affecting the
conduct of any trade or commerce and subject to the penalties and remedies as
provided by that act.
(b) If the attorney
general has reason to believe that any credit services business, or any
salesperson, agent, representative, or independent contractor acting on behalf
of a credit services business, has violated any provision of this part, the
attorney general may institute a proceeding under this chapter.
§ 47-18-1011. Bond
(1) In order to provide a degree of protection to customers of
credit services businesses, each credit services business shall post a bond of
one hundred thousand dollars ($100,000) with the department of commerce and
insurance. Such bond may be made through deposit of cash, a certificate of
deposit, securities, or with a bond issued by a corporate surety acceptable to
the commissioner.
(2) The bond must be maintained for two (2) years following the
date on which the credit services business ceases to conduct business in this
state.
(3) In an action brought by the attorney general and reporter
pursuant to § 47-18-1010,
the attorney general and reporter shall have the right to request that the
total amount of the bond posted by the credit services business be awarded to
the state for consumer restitution or civil penalties.
(4) Notwithstanding the provisions of subdivision (1), any credit
services business that was registered with the division of consumer affairs in
the department of commerce and insurance on May 1, 1998, in this state shall
only be required to post a bond in the amount of ten thousand dollars ($10,000)
with the department. Such bond may be made through deposit of cash, a
certificate of deposit, securities, or with a bond issued by a corporate surety
acceptable to the commissioner.
Case Law
I identified one case construing
the Act.
State v. New Beginning Credit Ass'n, Inc. Not Reported in S.W.3d, 2006 WL 1472284 (Tenn. Ct. App., 2006). The Credit Services Businesses Act prohibits a credit services business “shall not ... [c]harge or receive any money or other valuable consideration prior to full and complete performance of the services that the credit services business has agreed to perform for or on behalf of the consumer.” Tenn.Code Ann. § 47-18- 1003(1). The court construes this provision broadly and finds that a credit services business that signed three-year contracts with consumers for the purpose of improving their credit over that three year period, violated the terms of the Act when it charged consumers a monthly fee throughout the three year period. The defendant provided consumers with applications for unsecured credit cards and providing them access to discount buying services (which were not actually provided as promised) at the start of the three year contract period, but the court ruled that the defendant’s limited performance fell short of the “complete performance” required by the Act before accepting payment. The court dismissed defendant’s argument that it would be unable to operate a viable business under the court’s literal interpretation of the statute.
State v. New Beginning Credit Ass'n, Inc. Not Reported in S.W.3d, 2006
WL 1472284 (Tenn. Ct. App., 2006).
SEE COURT OF APPEALS RULES 11 AND 12
Court of
Appeals of
STATE of
v.
NEW
BEGINNING CREDIT ASSOCIATION, INC. et al.
No.
M1999-00461-COA-R3-CV.
Aug. 18,
2005 Session.
May 25,
2006.
Appeal from the Chancery Court for Davidson County, No.
97-313-III; Ellen Hobbs Lyle, Chancellor.
Paul G. Summers, Attorney General and Reporter; Michael E. Moore, Solicitor General; and Russell T. Perkins, Deputy Attorney General, for the appellant, State of
Tennessee.
Joseph L. Lackey, Jr., Nashville, Tennessee, for the appellees, New Beginning
Credit Association, Inc., Credit Alliance, Inc., Credit Connection, Inc., New
Beginning Financial Alliance, and Frank Andre William Iaquinta.
WILLIAM C. KOCH, JR., P.J., M.S., delivered the opinion of the court, in which WILLIAM B. CAIN and FRANK G. CLEMENT, JR., JJ., joined.
OPINION
WILLIAM C. KOCH, JR., P.J.
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(Cite
as: 2006 WL 1472284, *1 (Tenn.Ct.App.))
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This
appeal involves an enforcement action against a credit services company. The
State of
I.
Frank Andre William Iaquinta [FN1] began working as a salesperson for Second Chance Credit Association
(Second Chance) in 1992. Second Chance marketed credit services to clients
whose credit ratings were so unfavorable that they were unable to obtain credit
cards with limits as low as $300. In return for a fee paid in advance, the
company promised to assist its clients in repairing their credit by arranging
for them to obtain a credit card in their own name that would appear as
"unsecured" on credit reports even though it was partially backed by
life insurance policies. The idea was for the clients to make charges on the
credit card, pay the credit card bill in a timely manner, and thereby improve
their credit history.
FN1. The covers of the briefs on appeal list this party's name as "Frank Andre William Acantha " while the text of the briefs refer to him as "Frank Andre William Iaquinta." Counsel for the parties on appeal have not bothered to explain the reasons for the discrepancy to this court. From the record, it appears that this individual signs his name as "Iaquinta,"
not "Acantha."
Accordingly, we will use the name "Iaquinta" throughout this opinion.
In
1993, Mr. Iaquinta started his own credit services business, New Beginning
Financial Alliance (NBFA), based on the same business model used by Second
Chance. Shortly after NBFA opened, the insurance company that issued the life
insurance policies to back the credit cards cancelled its arrangement with Mr.
Iaquinta, and he was forced to close the business. Nine NBFA clients filed
consumer complaints about NBFA with the State of
Mr.
Iaquinta evidently desired to remain in the credit services business. Within a
three-month period in early 1994, he incorporated three related companies: New
Beginning Credit Association, Inc. (NBCA), Credit Connection, Inc. (Credit
Connection), and Credit Alliance, Inc. (Credit Alliance). [FN2] Mr. Iaquinta paid
refunds to several NBFA clients and transferred other accounts to NBCA. Thereafter,
Mr. Iaquinta placed NBFA in bankruptcy.
FN2. Credit Connection and Credit Alliance were formed to facilitate the transition from NBFA to NBCA. Credit Connection processed and serviced the accounts Mr. Iaquinta acquired from NBFA and Second Chance. In addition, Credit Connection and Credit Alliance "sponsored" the services offered by NBCA.
While
NBCA targeted the same clients as NBFA, it operated on a slightly different
business model. The credit cards offered through NBCA had limits ranging from
$300 up to $1,000. Instead of purchasing life insurance to back the cards, NBCA
itself guaranteed partial repayment of its clients' debts on their new credit
cards. The banks issuing the credit cards required NBCA to deposit forty
percent of the approved limit of each credit card into an escrow account that
could be used to repay the debt in the event of default. NBCA also arranged
credit lines with a mail-order company and a long distance telephone carrier so
that its clients could purchase items from a nationwide merchandise catalogue
and secure long distance telephone services on credit. Finally, NBCA promised
its customers access to discounts on a wide variety of products and services
ranging from car rentals, groceries, and hotel rooms to legal services, dental
and eye care services, and prescription medications.
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(Cite
as: 2006 WL 1472284, *2 (Tenn.Ct.App.))
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NBCA charged it clients a $1,139 "membership fee" to
participate in its three-year credit repair program. Clients had three options
for paying the membership fee: (1) pay the entire $1,139 up front; [FN3] (2) make a $149.00 down payment with monthly payments of $91.19
for the first year and $9.95 per month for the last two years; or (3) make a
$149.00 down payment with monthly payments of $49.86 for the first two years
followed by $9.95 per month for the final year of the program. Clients were
also allowed to charge the membership fee on their new credit cards. A client
could not become a "member" without first paying NBCA at least $149,
which could be charged to their new credit card. [FN4] In addition to the
membership fee, NBCA required its clients to make a one-time payment of $69.95
to obtain the line of credit with the mail-order catalogue company and a
$100.00 payment to obtain a second credit card with a credit limit ranging from
$300.00 to $600.00.
FN3. While the initial credit limits on the credit cards generally ranged from $300 to $1,000, NBCA also offered clients a credit card with a limit of $1,200 if they desired to pay the entire $1,139 membership fee on credit. After paying the membership fee, as well as an additional $45 charge, the clients were left with only $16 of available credit.
FN4. Clients also had the option of making an initial payment of just $25 to NBCA. However, according to Mr. Iaquinta, they did not receive access to any of NBCA's products or services until they paid the remainder of the $149 down payment. Mr. Iaquinta described this scheme as akin to a "layaway" program.
Mr.
Iaquinta aggressively advertised NBCA's services in newspapers in
FN5. Many credit services organizations are non-profit corporations.
Consumers
who responded to NBCA's advertisements were in for two big surprises. First,
the "Quick 3-Minute Pre-Qualification" process turned out to be an
interview that generally took over two hours to complete. Second, the
telemarketers who answered the calls informed potential customers that
"[t]here are fees involved" but stated that "you have a variety
of options and can get started with as little as $25." NBCA specifically
instructed its representatives not to explain the costs and fees required to
participate in the program over the telephone. At the conclusion of the
laborious telephonic pre-approval process, callers were told the time, date,
and location of an informational seminar they were required to attend in order
to participate in the program. It was not until consumers attended the seminar
that they were finally told about the $1,139 "membership fee" and the
other charges required to participate in NBCA's credit repair program.
Following
the seminar, NBCA provided consumers with written form contracts and disclosure
statements promising to provide them with "benefit programs such as Visa®
card sponsorship, catalog merchandise credit card, [and] discount buying
services" in return for payment of the $1,139 membership fee. However,
contrary to its representations, NBCA did not and could not "re-establish"
its customers' creditworthiness, nor did it provide them with meaningful access
to the promised discount buying services. In addition, NBCA pursued aggressive
collection practices against customers who fell behind in the payment of the
membership fees, thereby further damaging their credit histories. NBCA's
misrepresentations and other actions resulted in the filing of more than a
dozen consumer complaints with the Division of Consumer Affairs of the
Tennessee Department of Commerce and Insurance.
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(Cite
as: 2006 WL 1472284, *3 (Tenn.Ct.App.))
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On January 28, 1997, the State filed a complaint in the Chancery
Court for
FN6. Tenn.Code Ann. §§ 47-18-1001 to -1011 (2001).
FN7. Tenn.Code Ann. §§ 47-18-101 to -126 (2001 & Supp.2005).
The
court conducted an expedited bench trial on January 9, 1998 and entered an
order the same day concluding that: (1) NBCA was a credit services business
covered by the Tennessee Credit Services Businesses Act; (2) NBCA did not
violate Tenn.Code Ann. § 47-18-1003(1) of the Tennessee Credit Services Business Act by failing to
provide "full and complete performance" of the services it agreed to
provide to consumers before charging them or accepting money from them; (3)
NBCA had violated other provisions of the Tennessee Credit Services Businesses
Act and the Tennessee Consumer Protection Act; and (4) Mr. Iaquinta was liable
for violations of the Tennessee Consumer Protection Act because of his knowledge
of and control over NBCA's advertising, telemarketing, and discount buying
services program. The court permanently enjoined NBCA and Mr. Iaquinta from
making certain deceptive claims and set a hearing on further relief.
On
July 15, 1998, the court entered an order awarding the State $42,163.80 in
attorney's fees and costs and, on December 22, 1998, entered another order
assessing civil penalties of $42,000 against NBCA and $4,200 against Mr.
Iaquinta. The court rejected the State's request for restitution for consumers
on two grounds. First, the court concluded that it lacked jurisdiction to
impose a restitution award for consumers who resided outside
The
State filed a Tenn. R. Civ. P. 59.04 motion challenging three aspects of the trial court's orders.
First, the State claimed that the court had erred by concluding that NBCA did
not violate Tenn.Code Ann. § 47-18-1003(1) by charging or accepting money prior to "full and complete
performance" of the services it had agreed to perform for consumers.
Second, the State argued that the court had erred by concluding that
restitution was not practical, feasible, or cost-effective. Third, the State
insisted that the court had erred by determining that it lacked the authority
to award restitution to out-of-state consumers. The trial court denied the
State's post-trial motion, and the State appealed. Like its predecessor NBFA,
NBCA filed for bankruptcy protection, and on November 24, 1999, this court
stayed the appeal pending the outcome of the bankruptcy proceeding.
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(Cite
as: 2006 WL 1472284, *4 (Tenn.Ct.App.))
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In
2004, the State notified this court that the federal bankruptcy proceeding had
been concluded. The bankruptcy court discharged NBCA's debts, and NBCA was
dissolved by the Tennessee Secretary of State. On August 13, 2004, we entered
an order lifting the stay of the State's appeal, and on November 4, 2004, we
entered an order directing the State to show cause why the appeal should not be
dismissed as moot as a result of the bankruptcy discharge. In its response to
the show cause order, the State argued that NBCA's discharge in bankruptcy did
not render the appeal moot and that even if it did, this court should
nevertheless hear the appeal because it presents issues of public interest and
importance to the administration of justice and involves a situation that is
capable of repetition yet evading review. On November 19, 2004, we entered an
order concluding that the State had successfully demonstrated why the appeal
was not moot.
II.
THE STANDARDS OF REVIEW
Because
this is an appeal from a decision made by the trial court itself following a
bench trial, the now familiar standard in Tenn. R.App. P. 13(d) governs our review. This rule contains different standards for
reviewing a trial court's decisions regarding factual questions and legal
questions. With regard to a trial court's findings of fact, we will review the
record de novo and will presume that the findings of fact are correct
"unless the preponderance of the evidence is otherwise." We will also
give great weight to a trial court's factual findings that rest on
determinations of credibility. In re Estate of Walton, 950 S.W.2d 956, 959 (Tenn.1997); B & G Constr., Inc. v. Polk, 37 S.W.3d 462, 465 (Tenn.Ct.App.2000). However, if the trial judge has not made a specific finding of
fact on a particular matter, we review the record to determine where the
preponderance of the evidence lies without employing a presumption of
correctness. Ganzevoort v. Russell, 949 S.W.2d 293, 296 (Tenn.1997).
The
presumption of correctness in Tenn. R.App. P. 13(d) applies only to findings of fact, not to conclusions of law.
Accordingly, appellate courts review a trial court's resolution of legal issues
without a presumption of correctness and reach their own independent
conclusions regarding these issues. Johnson v. Johnson, 37 S.W.3d 892, 894 (Tenn.2001); Nutt v. Champion Int'l Corp., 980 S .W.2d 365, 367 (Tenn.1998); McCormick v. Aabakus, Inc., 101 S.W.3d 60, 62 (Tenn. Sp. Workers Comp. Panel 2000); Hicks v. Cox, 978 S.W.2d 544, 547 (Tenn.Ct.App.1998).
III.
THE
The
State claims that the trial court erred in concluding that NBCA rendered
"full and complete performance" before accepting payment from
consumers as required by the Tennessee Credit Services Business Act, that it
lacked jurisdiction under the Tennessee Consumer Protection Act to award
restitution for out-of-state consumers who did not attend seminars in
Tennessee, and that an award of restitution would be impractical and
ineffective. NBCA and Mr. Iaquinta dispute the State's contentions, and NBCA
argues additionally that the trial court erred by concluding that it is a
credit services business subject to the requirements of the Tennessee Credit
Services Businesses Act.
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NBCA
takes issue with the trial court's conclusion that it is a credit services
business subject to the requirements of the Tennessee Credit Services
Businesses Act. Alternatively, NBCA contends that even if it is a credit
services business, the trial court properly concluded that it rendered
"full and complete performance" of its obligations to consumers
before accepting payment from them by providing them with credit card
applications and by giving them access to its discount buying services. For its
part, the State disputes both of NBCA's arguments.
A.
So-called "credit repair" or "credit services"
businesses and organizations emerged on the commercial scene in the 1980s. [FN8] They advertised their
ability to get consumers out of debt in very short time periods despite the
limited possibilities for doing so legally and often encouraged consumers to
engage in fraud to accomplish such extraordinary results. [FN9] Lured in by the
companies' false promises, heavily debt-laden consumers in precarious financial
situations signed up for the programs in large numbers and paid the required
fees with money that would have been much better spent paying down their
mounting debts. [FN10] While these programs
took many forms-e.g., conducting educational seminars, or providing consumers
with access to secured or unsecured credit cards as a way of building up their
credit-they had one common feature. As one commentator has explained, "the
hallmark of most credit repair organizations was the billing of advance fees to
consumers before any credit repair services were provided." [FN11]
FN8. Federal Trade Comm'n v. Gill, 265 F.3d 944, 949 (9th Cir.2001); Marta Lugones Moakley, Credit Repair Organizations After
Regulation: Wolves in Nonprofits' Clothing?,
FN9. Eugene
J. Kelley, Jr. et al., The Credit Repair Organization Act: The
"Next Big Thing?," 57 Consumer Fin.
L.Q. Rep. 49, 49 (2003) (Kelley);
FN10. Alexander v. U.S. Credit Mgmt., Inc., 384 F.Supp.2d 1003, 1014 (N.D.Tex.2005);
FN11.
In
response to widespread abuses in the industry, most states and the federal
government enacted legislation to protect consumers from the sharp business
practices of credit repair and credit services businesses and organizations. [FN12] By 2003, thirty-eight states and the federal government had
passed laws regulating entities offering fee-based services to consumers
designed to improve their credit ratings. [FN13] The Tennessee Credit
Services Business Act requires credit services businesses to enter into written
contracts with their clients that include the "terms and conditions of
payment" and a "complete and detailed description of the services to
be performed and the results to be achieved by the credit services business for
or on behalf of the consumer." Tenn.Code Ann. § 47-18-1006(a)(2), (3). Consumers have ten days to cancel an agreement with a credit
services business, and this and other protections afforded by the act cannot be
waived. Tenn.Code Ann. §§ 47-18- 1006(b), -1007(c). The Act exempts from its coverage non-profit
corporations and certain entities that are already subject to oversight under
separate regulatory schemes. [FN14]
FN12. The federal statute is the 1996 Credit Repair Organizations Act, 15 U.S.C. §§ 1679-1679j (CROA).
FN13. Kelley, 57 Consumer Fin. L.Q. Rep. at 56.
FN14. Tenn.Code Ann. § 47-18-1002(5)(B) (exempting non-profits and federally insured banks, trust companies, and savings institutions, Tennessee and federal credit unions, real estate brokers, attorneys, registered securities or commodity futures brokers, and credit reporting agencies); cf. 15 U.S.C.A. § 1679a (exempting non-profits, banks, state and federal credit unions, and their affiliates and subsidiaries).
The
Tennessee Credit Services Businesses Act also contains broad prohibitions
against deceptive or fraudulent representations or acts in connection with the
provision of credit services. Credit services businesses cannot "[m]ake or
use any untrue or misleading representations in the offer or sale" of
their services, nor can they "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 their
services. Tenn.Code Ann. § 47-18-1003(4). Liability attaches for untrue or misleading representations even
where the representation was not made or used for the purpose of inducing
consumers to purchase particular products or services. See Federal Trade Comm'n v. Gill, 265 F.3d at 955. Finally, the Act
prohibits credit services businesses from "[c]harg[ing] or receiv[ing] any money or other valuable consideration prior to full and complete performance of the services that the credit services business has agreed to perform for or
on behalf of the consumer, including all representations made orally or in
writing. " Tenn.Code Ann. § 47-18-1003(1) (emphasis added). Tenn.Code Ann. § 47-18- 1003(1) broadly defines "full and complete performance" to
apply not only to the items listed in the written contract, but also to the
"fulfillment of all items listed in ... other solicitations or
communications to consumers."
B.
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We turn first to NBCA's contention that the trial court erred in
determining that it is a credit services business subject to regulation under
the Tennessee Credit Services Businesses Act. This claim has no legal or
factual basis. The Act defines a "[c]redit services business" as:
any
person who, with respect to the extension of credit by others, sells, provides,
or performs, or represents that such person can or will sell, provide, or perform
any of the following services in return for the payment of money or other
valuable consideration: (i)[i]mproving a consumer's credit record, history, or
rating; (ii)[o]btaining an extension of credit for a consumer; or
(iii)[p]roviding advice or assistance to a consumer with regard to either (i)
or (ii)....
Tenn.Code Ann. § 47-18-1002(5)(A). NBCA easily satisfies all three tests for credit services
business, and NBCA does not attempt to invoke the statutory exemption for
non-profits and entities governed by pre-existing regulatory schemes. Moreover,
in signed and notarized surety bonds filed with the State, NBCA has repeatedly
described itself as a corporation "doing business as a credit service
business, as defined in Tennessee Public Chapter No. 897, Acts 1988,"
i.e., the Tennessee Credit Services Businesses Act. [FN15] Accordingly, the trial
court did not err in determining that NBCA is a credit services business
subject to the requirements of the Tennessee Credit Services Businesses Act.
FN15. NBCA
filed similar surety bonds in
C.
The State takes issue with the trial court's conclusion that NBCA
was not violating the restriction in Tenn.Code Ann. § 47-18-1003(1) against charging or receiving any fees before completely
performing its services. NBCA responds that it would be unable to operate if
the State's interpretation of Tenn.Code Ann. § 47-18-1003(1) were correct and, therefore, that the trial court correctly
concluded that NBCA had rendered "full and complete performance" by
providing consumers with credit card applications and allowing them access to
its discount buying services. The undisputed facts support the State's
argument.
NBCA
does not dispute that it offered its clients three-year contracts, during which
time NBCA was presumably working hard to help its clients
"re-establish" their damaged credit ratings. Throughout this
three-year period, NBCA's clients were required to make payments every single
month in order to continue receiving NBCA's credit repair services unless, of
course, NBCA had accepted payment of the entire $1,139 fee up front. Moreover,
NBCA acknowledges, as it must, that it required its clients to make down
payments of at least $149 before allowing them access to the credit cards and
discount buying programs.
NBCA
seems to think that it satisfied the requirements of the Tennessee Credit
Services Businesses Act by providing a portion of its services prior to
receiving the final payments from clients in most cases. However, the Tennessee
Credit Services Businesses Act does not say that a credit services business
cannot receive any payments from consumers until it has provided some of
the credit repair services it has agreed to furnish. To the contrary, it states
broadly that a credit services business "shall not ... [c]harge or receive
any money or other valuable consideration prior to full and complete
performance [FN16] of the services that the credit services business has agreed to
perform for or on behalf of the consumer." Tenn.Code Ann. § 47-18- 1003(1) (footnote added). Thus, the statutory text unambiguously requires
a credit services business to forego any compensation from a consumer
prior to completion of every service it has agreed to provide, and the
fact that a credit services company has rendered some services before accepting
full or partial payment is irrelevant. [FN17]
FN16. The requirement of "full and complete performance" prior to the acceptance of any payments is not, as the trial court suggested, limited to the promises contained in the written contract between the credit services business and the consumer. The statute expressly provides that " 'Full and complete performance' means fulfillment of all items listed in the contract and other solicitations or communications to consumers" and included "all representations made orally or in writing" regarding the services to be performed on behalf of consumers. Tenn.Code Ann. § 47-18- 1003(1) (emphasis added).
FN17. Cf. Federal Trade Comm'n v. Gill, 265 F.3d at 956 (noting
that the analogous
federal statute "prohibits acceptance of any payment before fully
performing all services").
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The
trial court's ruling also contradicts its specific finding that NBCA failed to
provide meaningful access to the promised discount buying services NBCA
continued to accept $149 down payments and monthly payments from its clients in
spite of their inability to access the discount buying services. Whether
characterized as down payments, deposits, layaway plans, or something else,
anything that amounts to a full or partial payment up front is prohibited by
the Tennessee Credit Services Businesses Act, and the trial court's own
findings show that NBCA did not abide by this restriction.
The
inescapable conclusion is that NBCA flagrantly violated the requirements of the
Tennessee Credit Services Businesses Act with its system of down payments and
installment contracts. Simply put, Mr. Iaquinta structured and operated his
businesses in a manner that is expressly prohibited by both the Act and federal
law. To the extent that Mr. Iaquinta feels that the statutory requirements have
unduly restricted his business opportunities, his complaint is more properly
directed to the Tennessee General Assembly and Congress. The trial court's
ruling is insupportable under the facts of this case, the plain language of the
Tennessee Credit Services Businesses Act, and the trial court's own findings.
Accordingly, the trial court erred in determining that NBCA rendered "full
and complete performance" of its obligations to its customers merely by
giving them the applications for the unsecured credit cards and providing them
with access to discount buying services which, by their very nature, could only
be used over time.
IV.
RESTITUTION UNDER THE
The State takes issue with the trial court's two reasons for
denying its request for restitution on behalf of NBCA's clients. First, the
State insists that the trial court erred by concluding that requiring
restitution in this case would be impractical and not cost-effective. Second,
the State argues that the trial court erred by holding that it lacked authority
to award restitution to non-residents who had not attended NBCA's seminars in
FN18. NBCA's acts and practices that violated the Tennessee Credit Services Businesses Act were, by operation of law, also violations of the
The
Tennessee Consumer Protection Act authorizes courts to award restitution for
consumers in enforcement actions brought by the State in Tenn.Code Ann. § 47-18-108(b)(1) which provides:
The
court may make such orders or render such judgments as may be necessary to
restore to any person who has suffered any ascertainable loss by reason of the
use or employment of such unlawful method, act, or practice, any money or
property, real, personal, or mixed, or any other article, commodity, or thing
of value wherever situated, which may have been acquired by means of any act or
practice declared to be unlawful by this part.
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This provision authorizes restitution as long as two conditions
are met. First, the person or persons seeking restitution must have
"suffered an [ ] ascertainable loss by reason of" the unfair or
deceptive trade practice at issue. Second, the restitution order must be
limited to money, property, or other things of value "acquired by means of
an[ ] act or practice declared to be unlawful" by the Tennessee Consumer
Protection Act.
The
requirement that consumers demonstrate that they have suffered an
"ascertainable loss" as a precondition to recovery under the
Tennessee Consumer Protection Act is a common feature of state statutes banning
unfair and deceptive trade practices. [FN19] In this context,
ascertainable losses include losses that would not be a cognizable injury at
common-law. Feitler v. Animation Celection, Inc., 13 P.3d 1044, 1047 (Or.Ct.App.2000). An ascertainable loss is a deprivation, detriment, or injury
that is capable of being discovered, observed, or established. Service Road Corp. v. Quinn, 698 A.2d 258, 262 (Conn.1997); In re Wiggins, 273 B.R. 839, 856 (Bankr.D.Idaho 2001); Thiedemann v. Mercedes-Benz USA,
Inc., 872 A.2d 783, 793
(N.J.2005); Scott v. Western Int'l Surplus Sales,
Inc., 517 P.2d 661, 663
(Or.1973).
FN19. See JONATHAN SHELDON & CAROLYN L. CARTER, UNFAIR AND DECEPTIVE ACTS AND PRACTICES § 7.5.2.1, at 550 (5th ed. 2001) (UNFAIR AND DECEPTIVE ACTS AND PRACTICES ).
A
loss is ascertainable if it is measurable, even though the precise amount of
the loss is unknown. Hinchliffe v. American Motors Corp., 440 A.2d 810, 814 (Conn.1981); Rein v. Koons Ford, Inc., 567 A.2d 101, 106-07 (Md.1989); Talalai v. Cooper Tire & Rubber
Co., 823 A.2d 888, 898
(N.J.Super.Ct.2001); Weigel v. Ron Tonkin Chevrolet, Inc., 690 P.2d 488, 494 (Or.1984); In re W. Va. Rezulin Litig., 585 S.E.2d 52, 75 (W.Va.2003). An ascertainable loss
may include either an out-of-pocket loss or a loss in value. Thiedemann v. Mercedes-Benz USA,
Inc., 872 A.2d at 792. Accordingly, the courts have recognized that an ascertainable
loss occurs in circumstances where a consumer receives less than what was
promised. Hinchliffe v. American Motors Corp., 440 A.2d at 819; Int'l Union of Operating Eng'rs Local
No. 68 Welfare Fund v. Merck & Co., 894 A.2d 1136, 1145 (N.J.Super.App.Div.2006); In re W. Va. Rezulin Litig., 585 S.E.2d at 57.
The
ascertainable loss incurred by consumers as a result of NBCA's violations of
the Tennessee Consumer Protection Act was the membership fee they were induced to
pay. [FN20] Thus, the appropriate
measure of damages is the amount of money consumers paid to NBCA to participate
in its program. Restitution is available to any consumer who: (1) was misled by
NBCA's deceptive advertising and telemarketing into thinking the program was
free and participated in the lengthy telephone pre-approval process or attended
one of NBCA's seminars as a result; or (2) was charged fees before receiving
all services promised by NBCA. The detailed questionnaires submitted to the
trial court by the State were far more cumbersome than was necessary to obtain
the relevant information. Nevertheless, we have no doubt that the trial court
will be able to devise an efficient and cost-effective method for obtaining the
information necessary to make an award of restitution for consumers in light of
the legal analysis we have outlined.
FN20. At oral argument, it was suggested that charges consumers made on the credit cards arranged by NBCA should be included in the restitution award. We see no basis for including the credit card debts that consumers voluntarily incurred after obtaining the new Visa cards in the award of restitution under the facts of the present case.
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Finally,
we disagree with the trial court's determination that it lacked jurisdiction to
award restitution for consumers who were not
FN21. The courts of other states have interpreted their unfair and deceptive trade practices statutes to extend to out-of-state consumers as well. See UNFAIR AND DECEPTIVE ACTS AND PRACTICES § 2.4.4, at 74 & n. 1049 (collecting cases).
FN22. The trial court relied on BMW of North America, Inc. v. Gore, 517 U.S. 559, 116 S.Ct. 1589 (1996), a United States Supreme Court case arising under the Due Process Clause of the Fourteenth Amendment to the United States Constitution, to support its conclusion that it could not impose restitution for out-of-state consumers unless they had attended NBCA seminars in Tennessee.
V.
Accordingly, we affirm in part
and vacate in part the trial court's decisions and remand the case for further
proceedings consistent with this opinion. We tax the costs of this appeal
jointly and severally to New Beginning Credit Association, Inc. and Frank Andre
William Iaquinta, for which execution, if necessary, may issue.
Tenn.Ct.App.,2006.
State v. New Beginning Credit Ass'n, Inc.
Not Reported in S.W.3d, 2006 WL 1472284 (Tenn.Ct.App.)