Maryland Commissioner of Financial Regulation v. Cashcall, Inc.

REPORTED

IN THE COURT OF SPECIAL APPEALS

OF MARYLAND

No. 1477

September Term, 2013

MARYLAND COMMISSIONER OF
FINANCIAL REGULATION

v.

CASHCALL, INC., ET AL.

Krauser, C.J.,
Kehoe,
Rodowsky, Lawrence F.
(Retired, Specially Assigned),

JJ.

Opinion by Krauser, C.J.

Filed: October 27, 2015
This appeal requires that we delve into the question of what constitutes a “credit

services business” under the Maryland Credit Services Business Act (“MCSBA”).1 This

issue arose when, prompted by consumer complaints, the Maryland Commissioner of

Financial Regulation,2 appellant, conducted an investigation into the business activities of

CashCall, Inc., a California corporation, and its president and sole share-holder, John Paul

Reddam, appellees. The Commissioner found that CashCall had arranged, from 2006 to

2010, more than 5,000 loans for Maryland consumers, loans which were issued by two

federally insured out-of-state banks, at interest rates significantly greater than the rates

permitted by Maryland law. Then, three days after the issuance of each and every loan,

CashCall, pursuant to an agreement it had with each of the two out-of-state banks, promptly

purchased the loan from the issuing bank and thereafter collected all payments, interest,

and fees due on that loan from the borrowing Maryland consumer. Concluding that

CashCall and Reddam had engaged in the “credit services business” without a license to

do so and without complying with any of Maryland’s remedial statutes governing such

enterprises, the Commissioner ordered appellees to cease and desist from such activities

and imposed upon them a civil penalty for each of the more than 5,000 loans they had

arranged for interested Maryland consumers.

1
Md. Code (1975, 2013 Repl. Vol.) §§ 14-1901–1916 of the Commercial Law
Article (“Com. Law”).
2
The Commissioner’s statutory title is “the Commissioner of Financial Regulation
of the Department of Labor, Licensing, and Regulation.” Md. Code (1980, 2011 Repl.
Vol.) § 1-101(g) of the Financial Institutions Article (“Fin. Inst.”); Com. Law § 14-1901(b).
1
Vigorously disagreeing with the Commissioner’s assessment of its business

activities in Maryland, CashCall petitioned the Circuit Court for Baltimore City for judicial

review. Before that court, as it did before the Commissioner, CashCall insisted that, at no

time, during its marketing, facilitation, and ultimate acquisition of the loans it arranged,

was it acting as a “credit services business,” as defined by the MCSBA, because it never

received any compensation “directly” from a Maryland consumer for its services and,

therefore, under extant Maryland caselaw, did not qualify as such a business. The

Baltimore City circuit court agreed and reversed the Commissioner’s order, prompting the

Commissioner to note this appeal.

Because we believe that the Commissioner was correct in concluding that CashCall

was a “credit services business,” under the MCSBA, we shall reverse the decision of the

circuit court and remand for that court to affirm the Commissioner’s decision in this matter.

I.

CashCall, a California corporation, and its president and sole share-holder, John

Paul Reddam, were engaged in the business of marketing small loans, through a range of

media outlets, to Maryland consumers. The loans were to be issued, at interest rates

significantly greater than those permitted by Maryland law, by two federally insured out-

of-state banks: First Bank & Trust, a South Dakota-chartered state bank; and First Bank of

Delaware, a chartered bank of that state. Three types of loans were offered by CashCall to

interested Marylanders: a loan of $5,025 at an annual interest rate of 59%; a loan of $2,600

at an annual interest rate of 96%; and a loan of $1,025 at an annual interest rate of 89%.

2
From January of 2006 through the end of 2010, CashCall arranged 5,651 such loans for

Maryland consumers.

CashCall’s advertisements directed interested Maryland consumers to its website

where they could obtain a loan application and instructions on how to complete that form.

They also provided a telephone number that consumers could call to obtain assistance in

filling out the website’s loan application. And, once a loan application was completed by

an interested Maryland consumer, CashCall would forward that application to one of the

two federally insured out-of-state banks for approval.

Once the application was approved by one of the two banks, that bank would

disburse the loan to the consumer, though subtracted from the amount of the loan was an

“origination fee,” that is, “a fee charged by a lender for preparing and processing a loan.”3

Illustratively, for an approved loan of $2,600, the Maryland consumer received only $2,525

from the bank, that is, the loan amount less a $75 origination fee. The consumer was then

to pay the bank, or whomever thereafter held the loan, $2,600, the origination fee having

been rolled into the loan amount, plus interest. Thus, the consumer ultimately paid the

origination fee as he or she repaid the loan in monthly installments to whomever held the

loan.

After the loan was made, CashCall, under the contract it had entered into with each

of the two out-of-state banks, would promptly purchase the loan from the issuing bank.

Although its initial contracts with the two banks required CashCall to purchase the loan

3
Black’s Law Dictionary 732 (10th ed. 2014).
3
“on the same business day” that the loan was issued, those agreements were later amended

to grant CashCall three days to purchase the loan after it was disbursed to the consumer.

The purchase price for each loan, as noted, was the amount of the loan actually received

by the consumer plus the origination fee. Thus, for the $2,600 consumer loan described

earlier, CashCall would purchase the loan from the bank for $2,600—that figure comprised

the $2,525 actually loaned to the consumer plus the $75 “origination fee” to be paid by the

consumer.4 The banks, in turn, paid CashCall a “royalty fee” of between $5.00 and $72.22

per loan, depending on the amount of the loan and which of the two out-of-state banks had

made the loan.

Upon purchasing a loan, CashCall acquired the right to enforce the loan’s terms and

to collect the payments that were to be made by the borrowing consumer under the terms

of the loan, including all interest, penalties, and fees. Indeed, if a consumer mistakenly

sent a loan payment to the bank, rather than to CashCall, after CashCall had purchased the

loan, the bank was, pursuant to its contract with CashCall, obligated to “promptly” forward

that payment to CashCall.

Thus a Maryland consumer, who used CashCall to obtain such a loan, never paid

any loan payments or, for that matter, any fees or other payments of any nature, to the

out-of-state bank that initially issued the loan, but, instead, made all such payments directly

to CashCall. That meant, in making loan payments to CashCall, the consumer paid

4
CashCall would also pay, to the banks, the interest that had accrued on the loan
during the three-day period between the disbursement of the loan and its subsequent
purchase by CashCall.
4
CashCall the origination fee, which had been “rolled into” the amount of the loan, a fact

that will play a role in our pending analysis of whether CashCall was a “credit services

business.”

II.

From 2007 to 2009, the Commissioner received complaints from fourteen Maryland

consumers “concerning high-interest loans which [CashCall] arranged for them” and its

“collection activities” with respect to those loans. At the hearing that was held before an

administrative law judge (“ALJ”) on this matter, testimony was provided that showed that

the consumers, who contacted CashCall seeking a loan, were often responding to difficult

and pressing situations, such as loss of employment or the death of a family member.

Moreover, in the words of the ALJ who presided over that hearing, the “borrowers who

availed themselves of CashCall’s services” were “pushed to borrow more than they

wanted” by CashCall, encountered “serious difficulty in determining a payoff amount”

when they sought to pay off their loans early, and were “unable to extricate themselves

from the burden of the debts they had incurred.”

On June 23, 2009, after investigating CashCall’s business activities, the

Commissioner issued a summary order5 directing CashCall to, among other things, “cease

5
Section 2-115(a) of the Financial Institutions Article grants the Commissioner the
discretion to issue “a summary order” directing a person who has “engaged in an act or
practice constituting a violation of a law, regulation, rule or order over which the
Commissioner has jurisdiction” to “cease and desist” from engaging in that activity. The
summary cease and desist order must give the person notice of the opportunity for a hearing
before the Commissioner and notice that the summary order will be “entered as final” if a
hearing is not requested within fifteen days. Id. If such a hearing is requested and (cont.)

5
and desist” from engaging in its current business activities in Maryland, which, in the

Commissioner’s view, amounted to the unlicensed provision of “credit services.” In

response to that preliminary order, CashCall requested a hearing in the Office of

Administrative Hearings. After that request was granted, the aforementioned hearing was

held before an ALJ. And, following that hearing, the ALJ issued, on December 3, 2010, a

“proposed decision,” recommending that the Commissioner find that CashCall had

violated the MCSBA and the Maryland Consumer Loan Law by engaging in the credit

services business without a license to do so, that the Commissioner issue a final cease and

desist order prohibiting CashCall from operating a “credit services business” in Maryland,

and that CashCall be directed to pay a civil penalty for each of the 5,651 loans it had

assisted consumers in obtaining. Then, generously treating each of the 5,651 loans as a

“first offense,” rather than as a “second” or “subsequent offense,” the ALJ suggested that

CashCall be ordered to pay a penalty of $1,000 per loan6 for a total civil penalty of

$5,651,000. On January 3, 2011, the Commissioner issued a “proposed order” adopting

those recommendations.

(cont.) held and the Commissioner determines that a violation was committed, the
Commissioner may “issue a final cease and desist order against the person,” “suspend or
revoke the license of the person,” “issue a penalty order against the person imposing a civil
penalty up to the maximum amount of $1,000 for a first violation and a maximum amount
of $5,000 for each subsequent violation, or “take any combination” of those actions, as
well as “any other action authorized by law.” Fin. Inst. § 2-115(b).
6
Had the ALJ determined that each loan after the first was a “subsequent violation,”
a penalty of up to $5,000 for each subsequent loan could have been imposed. Fin. Inst.
§ 2-115(b).
6
CashCall thereafter filed exceptions to the Commissioner’s “proposed order.” The

hearing on those exceptions, however, was subsequently stayed, at CashCall’s request,

pending the Court of Appeals’ decision in Gomez v. Jackson Hewitt, Inc., 427 Md. 128

(2012). When that decision was issued, the stay was lifted and a hearing was held before

the Commissioner on November 8, 2012. Upon the conclusion of that hearing, the

Commissioner issued a “final order,” requiring both CashCall and Reddam to cease and

desist from engaging in “credit services business” activities in Maryland, and he imposed

a civil penalty of $5,651,000, for which appellees were jointly and severally liable. On

December 7, 2012, CashCall—but not Reddam—filed a petition for judicial review and a

motion to stay enforcement of the Commissioner’s order in the Baltimore City circuit court.

Four months later, on April 11, 2013, CashCall and Reddam filed an amended

petition for judicial review, adding Reddam as a petitioner. The circuit court, however,

dismissed their joint petition as “untimely.” That ruling, in effect, eliminated Reddam as

a party to the judicial-review proceeding.

After observing that CashCall “may very well” be a “predatory entity preying on”

Maryland consumers that has “developed a scheme to evade the usury laws of Maryland,”

the circuit court nonetheless reversed the Commissioner’s final order, declaring that, under

the Court of Appeals’ decision in Gomez, CashCall was not a “credit services business,”

under the MCSBA and therefore was not required to comply with the terms of that act. A

supplemental order was thereafter issued by that court to make it clear that its reversal of

the Commissioner’s final order pertained only to CashCall and not Reddam, as Reddam

was not a party to the original and only extant petition for judicial review.

7
The Commissioner then noted an appeal from that decision, which was followed by

a cross-appeal filed by CashCall and Reddam, challenging the court’s dismissal of their

amended petition for judicial review and the scope of its order reversing the

Commissioner’s decision. That cross-appeal, however, does not merit further discussion

as the issues it raises are rendered moot by our holding that CashCall did, in fact, violate

the MCSBA.7

III.

It is undisputed that CashCall was assisting Maryland consumers to obtain loans

from the two federally insured out-of-state banks. The Commissioner therefore contends

that he was correct in determining that CashCall was operating as an unlicensed “credit

services business” in Maryland in violation of the MCSBA. CashCall, of course, claims

otherwise. It maintains, and the circuit court agreed, that, under the Court of Appeals’ then

recent decision in Gomez v. Jackson Hewitt, Inc., 427 Md. 128 (2012), which considered

7
Appellees raise two issues in their cross-appeal. First, they contend that the circuit
court erred in granting the Commissioner’s motion to dismiss their amended petition for
judicial review on the grounds that the amended petition was “untimely.” Specifically,
they claim that their amended petition “related back” to the original petition filed by
CashCall, as their amended petition did not “add new claims or arguments” to the original
petition but sought only to add Reddam as a party to the proceedings. Since we reject
CashCall’s claims, this issue is now moot.
Second, appellees claim that the circuit court erred in entering an order that reversed
the Commissioner’s final order as to CashCall but not Reddam, leaving him liable for the
civil penalty imposed by the Commissioner. Reddam’s liability was “derivative” of
CashCall’s, they assert, and thus, in the event that CashCall was found not to have violated
the MCSBA, Reddam could not be held individually liable for the penalty imposed by the
Commissioner. But, as we conclude that CashCall violated the MCSBA, this issue is also
moot.

8
the MCSBA’s definition of a “credit services business,” CashCall was not a credit services

business because it did not receive “direct payment” from consumers for its services, a

requirement CashCall asserts is, under Gomez, a prerequisite for the MCSBA to apply.

“In an appeal from a circuit court’s judicial review of an administrative agency

proceeding, we review the final decision of the agency, not the circuit court.” Md. Dept. of

Transp. v. Maddalone, 187 Md. App. 549, 571 (2009). And that review is generally “a

narrow and highly deferential inquiry.” Md.–Nat. Capital Park & Planning Comm’n v.

Greater Baden-Aquasco Citizens Ass’n., 412 Md. 73, 83 (2009). Indeed, our review is

“limited to determining if there is substantial evidence in the record as a whole to support

the agency’s findings and conclusions, and to determine if the administrative decision is

premised upon an erroneous conclusion of law.” United Parcel Service, Inc. v. People’s

Counsel for Balt. Cnty., 336 Md. 569, 577 (1994). In making that determination, the test

we apply is “whether a reasoning mind could reasonably have reached the conclusion

reached by the agency, consistent with a proper application of the controlling legal

principles.” HNS Dev., LLC v. People’s Counsel for Balt. Cnty., 200 Md. App. 1, 14 (2011)

(quotations and alterations omitted).

Moreover, in reviewing an agency’s conclusions of law, we afford “considerable

weight” to the “agency's application of the statutory and regulatory provisions that are

regularly administered by the agency,” Md. Bd. of Physicians v. Elliot, 170 Md. App. 369,

408 (2006), though an agency’s construction of a statute “is not entitled to deference . . .

when it conflicts with the unambiguous statutory language,” Gomez v. Jackson Hewitt,

Inc., 427 Md. 128, 170 n.35 (2012) (internal citation omitted). In other words, it is “always

9
within our prerogative to determine whether an agency's conclusions of law are correct.”

Crofton Convalescent Ctr. v. Dep’t of Health & Mental Hygiene, 413 Md. 201, 215 (2010)

(internal quotation marks and citations omitted).

The MCSBA, in conjunction with the Maryland Consumer Loan Law,8 grants the

Commissioner broad licensing, investigatory, and enforcement authority over what the

MCSBA deems to be a “credit services business,” a business that is defined by the MCSBA

as one in which a

person[9] who, with respect to the extension of credit by others, sells,
provides, or performs, or represents that such person can or will sell, provide,
or perform, any of the following services in return for the payment of money
or other valuable consideration: . . . (ii) Obtaining an extension of credit for
a consumer; or (iii) Providing advice or assistance to a consumer with regard
to [obtaining an extension of credit for a consumer].

Com. Law § 14-1901(e)(1) (emphasis added).

The act defines an “extension of credit” as “the right to defer payment of debt or to

incur debt and defer its payment, offered or granted primarily for personal, family, or

household purposes,” Com. Law § 14-1901(f), and a “consumer” as “any individual who

is solicited to purchase or who purchases for personal, family, or household purposes the

services of a credit services business,” Com. Law § 14-1901(c).

The MCSBA requires a “credit services business” to, among other things, secure a

license from the Commissioner, Com. Law § 14-1903(b); maintain a surety bond, Com.

8
The Maryland Consumer Loan Law is codified in Fin. Inst. §§ 11-201–223 and
Com. Law §§ 12-301–317.
9
The definition of a “person” includes a corporation, like CashCall, and an
individual, like Reddam. Com. Law § 14-1901(g).
10
Law §§ 14-1908–1909; and provide an interested Maryland consumer with a written

information statement, Com. Law §§ 14-1904–1905, which describes the duties and

obligations of the credit services business (such as the obligation to provide a complete and

detailed description of the services to be performed by the credit services business and the

total amount the consumer will have to pay for those services) and the rights of the

Maryland consumer (such as the right to file a complaint with the Commissioner against a

credit services business). It further requires that any contract such a business enters into

with a consumer include a statement that the consumer has the right to “cancel th[e]

contract at any time prior to midnight of the third business day after the date of the

transaction.” Com. Law § 14-1906.

In assisting a Maryland consumer in obtaining a loan, however, the credit services

business may not help a consumer secure a loan with an interest rate that exceeds the

maximum interest rates permitted by Maryland law. Under Maryland law, the maximum

annual interest rate for a loan of $2,000 or less is 33%, and for a loan greater than $2,000,

24%. Com. Law § 12-306(a)(6). But—of particular relevance to CashCall’s business

practices—Maryland limits on interest rates for consumer loans do not apply to federally

insured out-of-state banks, and “a federally insured depository institution, whether federal

or state-chartered, may charge the interest rate permitted in its home state to borrowers

across state lines, regardless of the legal rate in the borrower’s state.” Gomez v. Jackson

Hewitt, Inc., 427 Md. 128, 163 (2012) (internal quotation marks and citation omitted).

But, though federal law permits federally insured out-of-state banks to charge what

would otherwise be usurious rates of interest on loans issued to Maryland consumers, the

11
MCSBA prohibits a “credit services business” from “assist[ing] a consumer to obtain an

extension of credit at a rate of interest which, except for federal preemption of State law,

would be prohibited” under state law. Com. Law § 14-1902(9). That is to say, a credit

services business may not, under the MCSBA, assist a consumer in obtaining a loan, from

any in-state or out-of-state bank, at an interest rate prohibited by Maryland law.

IV.

As to whether CashCall was a “credit services business” under the MCSBA’s

definition of that term, both CashCall and the Commissioner direct us to the Court of

Appeals’ decision in Gomez v. Jackson Hewitt, Inc., 427 Md. 128 (2012). In Gomez,

Maryland’s highest court was asked to decide whether a “tax preparer” was acting as a

“credit services business” when, in the course of preparing tax returns for its clients, it also

assisted those clients in obtaining a “refund anticipation loan,” acronymically known as a

“RAL.” To provide that service, the tax preparer in Gomez, Jackson Hewitt, had entered

into an agreement with a lender, Santa Barbara Bank & Trust (“SBBT”), pursuant to which

SBBT would “offer, process and administer,” to Jackson Hewitt customers, a RAL,

specifically, a “high interest loan . . . secured by the consumer’s expected income tax

refund,” which enables “the consumer to receive a tax refund roughly ten days sooner than

the IRS would deliver it.” Id. at 133–34 & n.4. To promote and facilitate such loans,

Jackson Hewitt would customarily inform its clients of the availability of these RALs and

assist interested clients in filling out applications for those loans. Id. at 134–36. Upon

approving a loan, SBBT paid a “fixed annual fee as well as variable payments tied to

12
growth in the [RAL] Program” to Jackson Hewitt for the “performance of services”

rendered by Jackson Hewitt “on behalf of SBBT.” Id. at 134.

After preparing the federal income tax return of Alicia Gomez, Jackson Hewitt

helped her obtain a RAL in accordance with its arrangement with SBBT. Id. at 134. The

loan Gomez received from SBBT had an 85.089% annual interest rate for a total loan

amount of $2,323. Id. at 136. But the bank did not disburse the total amount of the loan

to Gomez. Id. It paid to her just $1,950.97 of the $2,323 loan, retaining $88.03 as fees and

paying $284 of the loan amount to Jackson Hewitt, the “tax preparation fee,” which Gomez

owed Jackson Hewitt. Id.

Gomez subsequently brought suit against Jackson Hewitt, contending that Jackson

Hewitt was a “credit services business,” that it was therefore subject to the MCSBA, and

that it had violated the MCSBA by arranging her RAL without complying with the duties

and obligations imposed by that act on such businesses. Id. at 137–38. When Jackson

Hewitt moved to dismiss the complaint on the grounds that Jackson Hewitt was not a

“credit services business” and therefore the MCSBA did not apply to it, the circuit court

granted that motion, a decision that was subsequently affirmed by this Court. Gomez v.

Jackson Hewitt, Inc., 198 Md. App. 87 (2011).

Disappointed but undeterred, Gomez then filed a petition for a writ of certiorari in

the Court of Appeals, hoping to obtain a more favorable resolution of this issue. That

petition, in turn, elicited both a motion to intervene and joint petition for a writ of certiorari

from the Commissioner and the Consumer Protection Division of the Office of the

Maryland Attorney General, asking the Court of Appeals to determine whether the

13
MCSBA applied to a tax preparer that facilitates RALs but receives no direct payment from

the consumer for that service. Gomez, 427 Md. at 132–33 & n.1–2.

Following the grant of those petitions, Gomez, the Consumer Protection Division,

and the Commissioner contended, before the Court of Appeals, that the plain language of

the MCSBA’s definition of a “credit services business,” as well as the act’s legislative

history, rendered it applicable to Jackson Hewitt. Id. at 142. Jackson Hewitt responded

that it did not qualify as a “credit services business” because it did not, under the language

of the MCSBA, assist Gomez in obtaining a RAL “in return for the payment of money or

other valuable consideration.” Id. at 143 (emphasis in original). Rather, it maintained, it

was paid, at most, “indirectly” by Gomez when SBBT, after issuing the RAL to Gomez,

paid to Jackson Hewitt a portion of the loan amount for its services in preparing Gomez’s

tax return. Id. at 136.

The Court of Appeals agreed with Jackson Hewitt’s interpretation of the statute. Id.

at 178. After quoting the MCSBA, that to be subject to that act, an entity must provide

credit services “in return for the payment of money or other valuable consideration,” the

Court expounded that, “in the context of the [M]CSBA,” the term “‘in return’ can

reasonably be understood to envision an exchange of assistance for payment between the

consumer and the provider of that assistance and to mean that any payment to the credit

services business for such assistance in obtaining an extension of credit must come directly

from the consumer.” Id. at 154 (emphasis in original). As it was undisputed that Gomez

made no “direct payment” to Jackson Hewitt in return for its assistance in obtaining a RAL,

14
the Court held that Jackson Hewitt was not a “credit services business” and was therefore

not subject to the MCSBA. Id. at 155, 178.

During its review of that issue, the Gomez Court undertook a thorough and

comprehensive survey of the legislative history of the MCSBA to “confirm[]” that the act

was “not intended to regulate RAL facilitators who do not receive compensation directly

from the consumer.” Id. at 159. The salient points made by the Court, in its survey of the

legislative history of the act, were the following: The MCSBA was enacted in 1987 to

regulate “credit repair agencies.” Id. at 160. Its enactment was the result of the legislature’s

concern about the “predatory practices and misleading advertising” of businesses that “take

fees from consumers to improve or extend credit, or to give advice or assistance in such

matters,” and the MCSBA was enacted to “target” such businesses. Id. at 161–62.

The Court further noted that, in 2001, the legislature amended the act by adding to

the list of activities that a credit services business was proscribed from engaging in:

assisting a consumer in “obtain[ing] an extension of unsecured closed end credit at a rate

of interest which, except for federal preemption of State law,” would be prohibited by

Maryland law. Id. at 162–63. The purpose of this amendment was to target “payday

lenders” that were “partnering with a federal bank in order to ‘import’ [interest] rates into

Maryland.” Id. at 163. Specifically, the amendment was “aimed” at third-party

arrangements between “federally-insured depository institutions” and “local agents

(usually a check cashing business) to broker such loans,” and was intended to ensure the

“ability to enforce [Maryland’s] small loan laws by prohibiting a broker from arranging

a loan that is otherwise illegal by state law.” Id. at 164 (emphasis in original).

15
The following year, in 2002, the legislature, as the Court of Appeals observed,

expanded that prohibition by amending the act to apply to “an extension of unsecured

closed end credit or closed end credit secured by personal property at a rate of interest

which, except for federal preemption of State law,” would be prohibited by Maryland law.

Id. at 166 (emphasis added). This amendment rendered the MCSBA applicable to “any

extension of credit.” Id. (emphasis in original). The focus of the 2002 amendment,

however, was still on payday lenders because the 2001 enactment had, in the words of the

“Fiscal Note” accompanying this amendment when it was proposed, “fail[ed] in fact to

prevent payday lending as intended,” and this new amendment, it was hoped, would

“achieve the results the legislature [had] intended” to achieve the year before. Id.

(emphasis omitted).

Eight years later, in 2010, the MCSBA was amended once more. That amendment

prohibited a credit services business from “charg[ing] or receiv[ing] any money or other

valuable consideration in connection with an extension of credit that, when combined with

any interest charged on the extension of credit, would exceed the interest rate permitted for

the extension of credit under the applicable title of this article.” Id. at 167. It “clarifie[d]”

that “all fees associated with a payday loan” fell under Maryland’s “usury cap.” Id.

Quoting the “sponsor” of the amendment, the Gomez Court observed that the legislature,

in passing the amendment, was attempting to address “the gouging of the public by

essentially one company,” based in another state, which charged “up to 600 percent for a

payday loan” once all fees were calculated. Id.

16
The foregoing legislative history showed, according to the Court of Appeals, that

the MCSBA “was clearly industry specific,” as it targeted third-party business that were

“partnering with a federal bank in order to ‘import’ [interest] rates into Maryland.” Id. at

169, 163. But “[w]e are not persuaded,” the Court advised, “that such industry-specific

legislation indicates the General Assembly's intent to regulate income tax preparers that

assist their clients receiving, through a third-party lender, a RAL, if they do not receive any

payment directly from the consumer for that assistance.” Id. at 169.

V.

With that analysis of the legislative history of the MCSBA in mind, we return to the

question presented by the instant appeal and specifically to CashCall’s assertion that, in

order to be a “credit services business” under the MCSBA, it had to have received “direct

payment” from Maryland consumers, which CashCall maintains it did not. CashCall

reasons that, because Maryland consumers did not pay a fee to CashCall for its loan

arrangement services, it did not receive “the payment of money or other valuable

consideration” in return for obtaining extensions of credit for consumers.

The Commissioner flatly rejected that claim below, as he now does on appeal. He

maintains that he correctly determined that CashCall did, in fact, receive “direct payment”

from the consumers for whom it arranged loans. And, even if that did not occur, the “direct

payment” requirement, in Gomez, was never intended to apply beyond the factual

boundaries of that case, and certainly it was not intended to extend to companies, like

CashCall, whose “sole purpose” is to arrange loans for Maryland consumers and thereby

exclude the very businesses that the MCSBA was intended to cover.

17
We agree with the Commissioner that the Court of Appeals, in rendering its decision

in Gomez, did not intend to establish a universal rule, and that the “direct payment”

requirement was not meant to apply to a company, like CashCall, which is exclusively

engaged in assisting Maryland consumers to obtain small loans bearing annual interest

rates that would be, under Maryland law, usurious and then, to further profit from this

activity, immediately purchases the loans after their issuance and thereafter collects all

payments due on the loans from the consumer, including the “rolled in” origination fee.

We begin, as the Commissioner did in his final order, by recognizing that the Court

of Appeals, in Gomez, was asked to address a set of facts quite different from those

presently before us. The facts in Gomez established that there were, in the Commissioner’s

words, “two separate commercial relationships” between Gomez and Jackson Hewitt: one

relationship for tax preparation purposes and the other for facilitating the RAL. But

Jackson Hewitt’s “primary commercial and contractual relationship” with Gomez and its

other clients was “related to tax preparation,” said the Commissioner, and “not to obtaining

an extension of credit.” Consequently, for Jackson Hewitt to be subject to the MCSBA, “a

direct payment for the credit services [was] necessary to define what party fulfilled what

role in these separate commercial transactions.”

It was, indeed, this dual relationship between Gomez and Jackson Hewitt, with loan

arrangement playing a relatively minor role in their business relationship, that appeared to

trouble the Court of Appeals and led it to express concern about the consequences of

applying the MCSBA to instances where the credit services provided by a business to a

consumer are only ancillary to the primary relationship between the business and the

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consumer. This could lead, the Gomez Court noted, to “absurd results,” rendering the

MCSBA applicable “to tremendous numbers of retailers throughout Maryland who have

never registered under the [M]CSBA.” 427 Md. at 138. It pointed out that “mainstream

businesses” like “department stores, electronic retailers, big box retailers, book stores, gas

stations[, and] clothing retailers,” which are not primarily engaged in “credit services

business” with consumers but “routinely offer assistance to customers with applications

for credit offered by third-party banks in exchange for compensation from the banks,”

would be, under a broad application of the “direct payment” requirement, subject to the

MCSBA for the assistance they provided to consumers in applying for credit offered by

third parties. Id. at 159. Given the articulation of these concerns by the Court of Appeals,

we believe that Maryland’s highest court was impliedly suggesting that the “direct

payment” requirement set forth in Gomez was intended to apply only to “mainstream”

businesses that, like Jackson Hewitt, offer loan arrangement services as an ancillary

service, separate and distinct from the principal services they provide to Maryland

consumers.

Indeed, CashCall is obviously not, as the Commissioner observed, the type of

business that the Court of Appeals was confronted with, and concerned about, in Gomez.

In contrast to Jackson Hewitt, whose primary business is tax preparation and who provided

assistance in obtaining RALs as an ancillary service to its customers, CashCall’s loan

arrangement service was, as the Commissioner noted, the only service CashCall provided.

There was no evidence, declared the Commissioner, that CashCall “provided any other

services to the consumers” other than arranging loans. And, since the nature of the

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commercial relationship between CashCall and Maryland consumers was clear, it was not

necessary, opined the Commissioner, to make the “applicability of the MCSBA contingent

on whether a consumer has made a ‘direct’ payment to CashCall.” We agree. The concerns

that prompted the Court of Appeals in Gomez to require a “direct payment” from the

consumer to the business entity in exchange for credit services simply do not exist here.

Moreover, the amendments made to the MCSBA in 2001, 2002, and 2010, were

meant, as the Commissioner put it, to “encompass[] third parties who, partnering with out-

of-state banks, facilitate predatory lending against Maryland consumers.” The legislature’s

intent, averred the Commissioner, was to protect Maryland consumers from “schemes” in

which a third-party business, like CashCall, entered into an agreement with an out-of-state

bank to arrange a loan, from the bank to the consumer, at interest rates prohibited by

Maryland law, regardless of whether that third party received “direct payment” from the

consumer.

We agree that CashCall’s business practices, viewed in the light of the MCSBA’s

goal of protecting Maryland consumers from the lending practices of companies marketing

high-interest small loans and partnering with out-of-state banks in order to charge what

would otherwise be usurious rates of interest, are precisely the sort of business activities

that the act and its amendments were enacted to prevent. To make the MCSBA’s

applicability contingent on a “direct payment” from the consumer to the business entity,

under any and all circumstances, would undermine the protections for Maryland consumers

the legislature strove so hard to put in place.

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VI.

Moreover, even if it were the case (though we do not believe that it is) that an

enterprise, regardless of the nature of its business and the services it provides, cannot be a

“credit services business” unless it is directly paid by the consumers it serviced, the

direct-payment requirement was, as the Commissioner found, satisfied here. CashCall did,

in fact, receive direct payment from Maryland consumers for the preparation and

processing of the loans it arranged for them.

To illustrate how this occurred, we shall briefly revisit the loan arrangement services

offered and provided by CashCall. To begin with, once CashCall had gained the attention,

through its advertisements, of a Maryland consumer interested in obtaining a small loan,

CashCall then assisted that consumer in applying for such a loan at an annual interest rate

from 59% to 96%, a range of interest rates deemed usurious by Maryland law. That

assistance consisted of offering advice, supplying a loan application form, and providing

assistance, over the telephone, to the interested consumer in completing the application.

Upon completion of that application by the interested consumer, CashCall would transmit

the application to one of two out-of-state banks for approval. After the loan was approved,

the bank would transfer the loan to the consumer’s account, less an “origination fee.” The

consumer remained obligated, however, to pay to the holder of the loan that origination

fee, which was, in the Commissioner’s words, “rolled into the principal amount of the

loan.”

Then, three days after the bank funded the loan, CashCall would purchase, from the

bank, the loan, which encompassed the origination fee. CashCall thereafter had the right

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to collect, directly from the borrowing Maryland consumers, all loan payments, interest,

and fees due under the loan. Thus, CashCall received, directly from each Maryland

consumer for whom it had arranged a loan, payment of the origination fee.

It is of no consequence that the origination fee was originally charged by the lending

bank. The bank never received payment of that fee from the consumer but, as noted,

CashCall did. Nor does it matter that the payments for the origination fee were made as

part of the payments on the principal amount of the loan. That arrangement affected how

payment of the origination fee was to be made, but not what the payment was for, who

made it (the consumer), or who received it (CashCall).

Finally, we feel impelled to note, and express our agreement with, the statement

made by the Commissioner, in his final order, that if we were to accept CashCall’s

contention that it received no direct payments for its services—despite the fact that the out-

of-state banks never actually received, from any of the recipients of those loans, any

payments for the loans that they had issued, while CashCall did—we would have to “accept

that any credit services business is permitted to re-direct the path of a consumer payment

through a myriad of creative business structures and transactions and avoid the MCSBA.”

We decline to do so and conclude that CashCall, by collecting the origination fee paid by

the borrowing consumer, received “direct payment” from the consumers and therefore was,

if that be the standard here, a “credit services business” under the MCSBA.

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JUDGMENT OF THE CIRCUIT
COURT FOR BALTIMORE CITY
REVERSED. CASE REMANDED TO
THAT COURT FOR THE ENTRY OF
A JUDGMENT AFFIRMING THE
ORDER OF THE COMMISSIONER.
COSTS TO BE PAID BY
APPELLEES.

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