Md. Comm’r of Fin. Regulation v. Cashcall (Ct. of Special Appeals)

Filed: October 27, 2015

Opinion by: Krauser, C.J.

Holding:

A company qualifies as a “credit services business” under the Maryland Credit Services Business Act only if the sole business activity is loan arrangement services and the business must directly receive compensation from a Maryland consumer.

Facts:

Defendant is a California company that marketed consumer loans through online services. Defendant referred consumers to two federally insured out-of-state banks and assisted the clients complete the loan application. If a customer met the lending requirements, one bank would process the loan, less an origination fee paid to the Defendant. Under the contract between the bank, Defendant must repurchase the loan amount – including all servicing and processing fees – owed by the consumer after the loan was disbursed. Additionally, the interest rates of these loans exceeded the permissible rates under Maryland law.

The Maryland Commissioner of Financial Regulation received numerous consumer complaints from 2007 to 2009. The Commissioner initiated an action in 2009, charging that Defendant operated as a credit services business without a license in violation of the Maryland Credit Services Business Act (“MCSBA”).

Analysis:

The court observed that, pursuant to the MCSBA’s legislative history, any company that receives payment directly from a consumer for loan repayment is subject to regulation under the MCSBA.  Any attempt by a company that provides consumer lending services and receives payment would undercut the law in opposition to the legislative intent of the law. Thus, the state would apply a broad view to regulate companies that operate primarily to provide consumer loans.

To define the term, “credit services business,” the Court reviewed Gomez v. Jackson Hewitt, Inc., 427 Md. 128 (2012). In Gomez, the Court of Appeals determined that Jackson Hewitt, Inc. had not violated the MCSBA. Jackson Hewitt offered tax preparation services and provided refund assistance lending (“RAL”) to qualifying customers, but did not directly receive any compensation from the customer for the RAL services. The Gomez Court ruled that Jackson Hewitt did not fit the legal requirements for a credit services business.

The Court distinguished Defendant’s services from Gomez on two key issues. First, Defendant received compensation directly from the consumers. Each loan processed by either bank was subject to the same “origination fee” which was then rolled into the repacked loan bought by Defendant. Consumers paid Defendant for the borrowed amount plus this origination amount. The Court concluded that Defendant “by collecting the origination fee paid by the borrowing consumer, received ‘direct payment’ from the consumers and therefore was . . .  a ‘credit services business’ under the MCSBA.” In contrast, Jackson Hewitt did not have a set origination fee which consumers never directly paid to the company for the loan services.

Second, Defendant fell under MCSBA regulation because it operated primarily and wholly as a consumer lending service. Defendant assisted consumers to complete the loan application, referred the loan to a bank, and repurchased the debt. The Court explicitly stated Defendant’s “loan arrangement service was . . . the only service [Defendant] provided.” Jackson Hewitt, on the other hand, primarily provided tax preparation services and only a small fraction of the consumers received RAL.

The full opinion is available in PDF.