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