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 Bell, 309 B.R. 139 (Bkrtcy. E.D. Pa., 2004). A mortgage broker violated the requirements of the Credit Services Act when it failed to provide borrower any of the disclosures required by Pennsylvania's Credit Services Act, including the right of the buyer to rescind within 5 days of signing, before executing a contract or receiving money. Although the buyer had rescinded the contract and received a full refund of her expenditures, the court would award damages equal to the money she paid to the mortgage broker, including the yield spread premium built into her interest rate, because the statute provided for an award “not less” than that amount. In a subsequent decision, however, the same court ruled that although damages under the Credit Services Act normally will be trebled (because a violation of that statute is a per se violation of the Consumer Protection Law which provides for treble damages), plaintiff could not recover treble damages because she had received a refund and thus suffered no damages. In re Bell, 314 B.R. 54 (Bkrtcy. E.D. Pa., 2004).
Statutory Exemptions:
Emma King, Vanessa Saunders and Bonnie Bell Henry v. Bernard E. Rubin, James Montgomery, Rubin, 1998 WL 1297102 (Pa. Com. Pl., 1998). The Credit Services Act exempts from its scope any person licensed as a real estate broker when they act in the scope of that license. Where organization “Credit Workshop” only provided its services as part of parent organization’s real estate brokerage and where those services were completely connected and ancillary to that business, the real estate broker exception applied and Credit Workshop was not liable for failure to comply with the Credit Services Act.
Emma King, Vanessa Saunders and Bonnie Bell Henry v. Bernard E. Rubin, James Montgomery, Rubin, 1998 WL 1297102 (Pa. Com. Pl., 1998)
1998 WL 1297102 (Pa.Com.Pl.), 35 Phila.Co.Rptr. 571
Court of Common Pleas of Pennsylvania, Philadelphia County, Civil Division
Emma King, Vanessa Saunders and Bonnie Bell Henry
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.