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§ 46A-6C-1. Definitions

(1) "Buyer" means an individual who is solicited to purchase or who purchases the services of a credit services organization as defined in section two of this article.

(2) "Consumer reporting agency" has the meaning assigned by Section 603(f), Fair Credit Reporting Act (15 U.S.C. Section 1681a(f)).

(3) "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, household or agriculture purposes."

§ 46A-6C-2. Credit services organization

(a) A credit services organization is a person who, with respect to the extension of credit by others and in return for the payment of money or other valuable consideration, provides, or represents that the person can or will provide, any of the following services:

(1) Improving a buyer's credit record, history or rating;

(2) Obtaining an extension of credit for a buyer; or

(3) Providing advice or assistance to a buyer with regard to subdivision (1) or (2) of this subsection.

(b) The following are exempt from this article:

(1) A person authorized to make loans or extension of credit under the law of this state or the United States who is subject to regulation and supervision by this state or the United States, or a lender approved by the United States secretary of housing and urban development for participation in a mortgage insurance program under the National Housing Act (12 U.S.C. Section 1701, et seq.);

(2) A bank or savings and loan association whose deposit or accounts are eligible for insurance by the federal deposit insurance corporation or the federal savings and loan insurance corporation or a subsidiary of such a bank or savings and loan association;

(3) A credit union doing business in this state;

(4) A nonprofit organization exempt from taxation under Section 501(c)(3) of the Internal Revenue Code of 1986;

(5) A person licensed as a real estate broker or salesman under the Real Estate Brokers License Act acting within the course and scope of that license;

(6) A person licensed to practice law in this state acting within the course and scope of the person's practice as an attorney;

(7) A broker-dealer registered with the securities and exchange commission or the commodity future trading commission acting within the course and scope of that regulation;

(8) A consumer reporting agency;

(9) A person whose primary business is making loans secured by liens on real property;

(10) A person whose primary business is the retail sale of automobiles and trucks: Provided, That the person is not extending credit for a buyer, excluding assignments; and

(11) A person licensed to practice public accounting in this state acting within the course and scope of the person's practice as an accountant.

§ 46A-6C-3. Prohibited conduct

A credit services organization, a salesperson, agency or representative of a credit services organization or an independent contractor who sells or attempts to sell the services of a credit services organization may not:

(1) Charge a buyer or receive from a buyer money or other valuable consideration before completing performance of all services the credit services organization has agreed to perform for the buyer, unless the credit services organization has obtained in accordance with section four of this article a surety bond in the amount required by section four of this article issued by a surety company authorized to do business in this state or established and maintained a surety account at a federally insured bank or savings and loan association located in this state in which the amount required is held in trust as required by section four of this article;

(2) Charge a buyer or receive from a buyer 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 that is or will be extended to the buyer is substantially the same as that available to the general public from other sources;

(3) Make or use a false or misleading representation in the offer or sale of the services of a credit services organization, including:

(A) Guaranteeing to "erase bad credit" or words to that effect unless the representation clearly discloses that this can be done only if the credit history is inaccurate or obsolete; and

(B) Guaranteeing an extension of credit regardless of the person's previous credit problem or credit history unless the representation clearly discloses the eligibility requirements for obtaining an extension of credit.

(4) Engage, directly or indirectly, in an unfair or deceptive act, practice, or course of business in connection with the offer or sale of the srvices of a credit services organization;

(5) Make, or advise a buyer to make a statement with respect to a buyer's credit worthiness, credit standing, or credit capacity that is false or misleading or that should be known by the exercise of reasonable care to be false or misleading, to a consumer reporting agency or to a person who has extended credit to a buyer or to whom a buyer is applying for an extension of credit;

(6) Advertise or cause to be advertised, in any manner whatsoever, the services of a credit services organization without filing a registration statement with the secretary of state, unless otherwise provided by this chapter.

§ 46A-6C-4. Bond; surety account

(a) This section applies to a credit services organization required by section three of this article to obtain a surety bond or establish a surety account.

(b) If a bond is obtained, a copy of it shall be filed with the secretary of state. If a surety account is established, notification of the depository, the trustee, and the account number shall be filed with the secretary of state.

(c) The bond or surety account required must be in favor of the state of the benefit of any person who is damaged by any violation of this article. The bond or surety account must also be in favor of any person damaged by such a violation.

(d) Any person claiming against the bond or surety account for a violation of this article 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 damages awarded under section nine of this article and not the punitive damages permitted under that section. The aggregate liability of the surety or trustee to all persons damaged by a credit services organization's violation of this chapter may not exceed the amount of the surety account or bond.

(e) The bond or the surety account shall be in the amount of fifteen thousand dollars.

(f) A depository holding money in a surety account under this chapter may not convey money in the account to the credit services organization that established the account or a representative of the credit services organization unless the credit services organization or representative presents a statement issued by the secretary of state indicating that section five of this article has been satisfied in relation to the account. The secretary of state may conduct investigations and require submission of information as necessary to enforce this subsection.

§ 46A-6C-5. Registration

(a) A credit services organization shall file a registration statement with the secretary of state before conducting business in this state. The registration statement shall contain:

(1) The name and address of the credit services organization; and

(2) The name and address of any person who directly or indirectly owns or controls ten percent or more of the outstanding shares of stock in the credit services organization.

(b) The registration statement shall also contain either:

(1) A full and complete disclosure of any litigation or unresolved complaint filed with a governmental authority of this state relating to the operation of the credit services organization; or

(2) A notarized statement that states that there has been no litigation or unresolved complaint filed with a governmental authority of this state relating to the operation of the credit services organization.

(c) The credit services organization shall update the statement not later than the ninetieth day after the date on which a change in the information required in the statement occurs.

(d) Each credit services organization registering under this section shall maintain a copy of the registration statement in the files of the credit services organization. The credit services organization shall allow a buyer to inspect the registration statement on request.

(e) The secretary of state may charge each credit services organization that files a registration statement with the secretary of state a reasonable fee not to exceed one hundred dollars to cover the cost of filing. The secretary of state may not require a credit services organization to provide information other than that provided in the registration statement. All fees and moneys collected by the secretary of state pursuant to the provisions of this article shall be deposited by the secretary of state as follows: One-half shall be deposited in the state fund, general revenue and one-half shall be deposited in the service fees and collections account established by section two, article one, chapter fifty-nine of this code for the operation of the office of the secretary of state. The secretary of state shall dedicate sufficient resources from that fund or other funds to provide the services required in this article.

(f) The bond or surety account shall be maintained until two years after the date that the credit services organization ceases operations.

§ 46A-6C-6. Disclosure statement

(a) Before executing a contract or agreement with a buyer or receiving money or other valuable consideration, a credit services organization shall provide the buyer with a statement in writing, containing:

(1) A complete and detailed description of the services to be performed by the credit services organization for the buyer and the total cost of the services;

(2) A statement explaining the buyer's right to proceed against the bond or surety account required by section three of this article;

(3) The name and address of the surety company that issued the bond, or the name and address of the depository and the trustee, and the account number of the surety account;

(4) A complete and accurate statement of the buyer's right to review any file on the buyer maintained by a consumer reporting agency, as provided by the Fair Credit Reporting Act (15 U.S.C. Sec. 1681 et seq.);

(5) A statement that the buyer's file is available for review at no charge on request made to the consumer reporting agency within thirty days after the date of receipt of notice that credit has been denied, and that the buyer's file is available for a minimal charge at any other time;

(6) A complete and accurate statement of the buyer's right to dispute directly with the consumer reporting agency the completeness or accuracy of any item contained in a file on the buyer maintained by that consumer reporting agency;

(7) A statement that accurate information cannot be permanently removed from the files of a consumer reporting agency;

(8) A complete and accurate statement of when consumer information becomes obsolete, and of when consumer reporting agencies are prevented from issuing reports containing obsolete information; and

(9) A complete and accurate statement of the availability of nonprofit credit counseling services.

(b) The credit services organization shall maintain on file, for a period of two years after the date the statement is provided, an exact copy of the statement, signed by the buyer, acknowledging receipt of the statement.

§ 46A-6C-7. Form and terms of contract

(a) Each contract between the buyer and a credit services organization for the purchase of the services of the credit services organization must be in writing, dated, signed by the buyer, and must include:

(1) A statement in type that is boldfaced, capitalized, underlined, or otherwise set out from surrounding written materials so as to be conspicuous, 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 before midnight of the third 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 another 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 length of time, not to exceed one hundred eighty days, for performing the services; and

(4) The address of the credit services organization's principal place of business and the name and address of its agent in the state authorized to receive service or process.

(b) The contract must have attached two easily detachable copies of a notice of cancellation. The notice must be in boldfaced type and in the following form:

You may cancel this contract, without any penalty or obligation, within three days after the date the contract is signed.

If you cancel, any payment made by you under this contract will be returned within ten days after the date of receipt by the seller of your cancellation notice.

To cancel this contract, mail or deliver a signed dated copy of this cancellation notice, or other written notice to:

(name of seller) at (address of seller) (place of business) not later than midnight (date)

I hereby cancel this transaction.

(date)

(purchaser's signature)"

(c) The credit services organization shall give to the buyer a copy of the completed contract and all other documents the credit services organization requires the buyer to sign at the time they are signed.

(d) The breach by a credit services organization of a contract under this article, or of any obligation arising from this article, is an unfair or deceptive act or practice.

§ 46A-6C-8. Waiver

(a) A credit services organization may not attempt to cause a buyer to waive a right under this article.

(b) A waiver by a buyer of any part of this article is void.

(a) A buyer injured by a violation of this article may bring any action for recovery of damages. The damages awarded may not be less than the amount paid by the buyer to the credit services organization, plus reasonable attorney's fees and court costs.

(b) The buyer may also be awarded punitive damages.

§ 46A-6C-10. Criminal penalty

A person who violates the provisions of this article is guilty of a misdemeanor, and, upon conviction thereof, shall be fined not less than one thousand dollars, imprisoned in the county jail not more than one year, or both fined and imprisoned.

§ 46A-6C-11. Burden of proving exemption

In an action under this article, the burden of proving an exemption under section two of this article is on the person claiming the exemption.

§ 46A-6C-12. Remedies cumulative

The remedies provided by this article are in addition to other remedies provided by law.

Herrod v. First Republic Mortg. Corp., Inc., 218 W.Va. 611, 625 S.E.2d 373 (W. Va. , 2005). The court ruled that the Credit services organizations (CSO) provisions of Consumer Credit and Protection Act do not prohibit a licensed lender from using a yield spread premiums in home mortgage loan transactions. The court relied followed precedent to conclude that a mortgage broker is not subject to thee provisions of the Act unless it receives money from the borrow in advance of performing all the services promised by the broker and that thee Act does not apply when the broker fee is paid out of closing costs. Furthermore, even if the original mortgage lender had been liable under the Act, that lenders assignee was not liable under the Act and was not required to confirm the assignors compliance with the statutory requirements.

Brown v. Mortgagestar, Inc., 194 F.Supp.2d 473 (S.D. W. Va. , 2002). Because the Act exempts licensed mortgage lenders, a mortgage broker that also was licensed as a mortgage lender was exempted from the Act.

Arnold v. United Companies Lending Corp., 204 W.Va. 229, 511 S.E.2d 854 (W. Va. , 1998). This decision largely deals with issues under the Act that are unique to loan brokers, but also holds that an arbitration clause in a broker’s contract was unenforceable as unconscionable due to the disparity in bargaining power between the broker and the client. The court also reiterates and expounds upon the statutory disclosure requirements and mandatory contract provisions, which apply to both loan brokers and credit repair organizations.

Arnold v. United Companies Lending Corp., 204 W.Va. 229, 511 S.E.2d 854 (W. Va. , 1998).

Orville ARNOLD and Maxine Arnold Plaintiffs,
v.
UNITED COMPANIES LENDING CORPORATION, a corporation, and Michael T. Searls, an individual, Defendants.

Borrowers filed suit against lender and loan broker, seeking declaratory judgment that arbitration agreement, signed as part of loan transaction, was void and unenforceable. The Circuit Court, Lincoln County , J.M. Hoke, J., certified questions. The Supreme Court of Appeals, McCuskey, J., held that: (1) arbitration agreement contained in consumer loan contract subject to the Consumer Credit and Protection Act (CCPA) was unconscionable; (2) loan broker was obligated under CCPA to provide prospective borrowers with a written contract describing services to be performed; (3) loan broker is obligated to disclose loan options and risks available to prospective borrowers if he is acting as a true broker; and (4) existence of agency relationship between loan broker and prospective borrowers is fact dependent.
Certified questions answered.

[1] KeyCite Notes

30 Appeal and Error

30XVI Review

30XVI(F) Trial De Novo

30k892 Trial De Novo

30k893 Cases Triable in Appellate Court

30k893(1) k. In General. Most Cited Cases

The appellate standard of review of questions of law answered and certified by a circuit court is de novo.

[2] KeyCite Notes

30 Appeal and Error

30V Presentation and Reservation in Lower Court of Grounds of Review

30V(E) Cases and Questions Reserved or Certified

30k307 Nature and Grounds of Reservation or Certification

30k308 k. Nature of Questions in General. Most Cited Cases

In a certified case, the Supreme Court of Appeals will not consider certified questions not necessary to a decision of the case.

[3] KeyCite Notes

25T Alternative Dispute Resolution

25TII Arbitration

25TII(B) Agreements to Arbitrate

25Tk131 Requisites and Validity

25Tk134 Validity

25Tk134(6) k. Unconscionability. Most Cited Cases
(Formerly 33k6.2 Arbitration)

Arbitration agreement contained in consumer loan contract subject to the Consumer Credit and Protection Act (CCPA) was unconscionable and, thus, void and unenforceable; lender was a national corporation and borrowers were elderly, unsophisticated consumers, loan broker did not make any other loan option available to borrowers, borrowers were not represented by legal counsel during transaction, and arbitration agreement waived borrowers' right of access to courts, while preserving lender's right of access to courts. Code, 46A-1-101 et seq. , 46A-5-101(1), 46A-2-121.

[4] KeyCite Notes

92B Consumer Credit

92BI In General

92Bk3 License and Regulation in General

92Bk3.1 k. In General. Most Cited Cases

92B Consumer Credit KeyCite Notes

92BI In General

92Bk17 k. Effect of Violation of Regulations or Lack of License. Most Cited Cases

The legislature, in enacting the Consumer Credit and Protection Act (CCPA), sought to eliminate the practice of including unconscionable terms in consumer agreements covered by the Act and, to further this purpose, the legislature created a cause of action for consumers and imposed civil liability on creditors who include unconscionable terms in consumer agreements. Code, 46A-1-101 et seq. , 46A-5-101(1), 46A-2-121.

[5] KeyCite Notes

95 Contracts

95I Requisites and Validity

95I(A) Nature and Essentials in General

95k1 k. Nature and Grounds of Contractual Obligation. Most Cited Cases

A determination of unconscionability must focus on the relative positions of the parties, the adequacy of the bargaining position, the meaningful alternatives available to the challenging party, and the existence of unfair terms in the contract.

[6] KeyCite Notes

25T Alternative Dispute Resolution

25TII Arbitration

25TII(B) Agreements to Arbitrate

25Tk131 Requisites and Validity

25Tk134 Validity

25Tk134(6) k. Unconscionability. Most Cited Cases
(Formerly 33k6.2 Arbitration)

Where an arbitration agreement entered into as part of a consumer loan transaction subject to the Consumer Credit and Protection Act (CCPA) contains a substantial waiver of the borrower's rights, including access to the courts, while preserving the lender's right to a judicial forum, the agreement is unconscionable and, therefore, void and unenforceable as a matter of law. Code, 46A-1-101 et seq. , 46A-5-101(1), 46A-2-121.

[7] KeyCite Notes

92B Consumer Credit

92BI In General

92Bk16 k. Disclosure Requirements; Statements and Receipts. Most Cited Cases

Loan broker was obligated under the credit service organization provisions of the Consumer Credit and Protection Act (CCPA) to provide prospective borrowers with a written contract containing a description of services to be performed, to give them an opportunity to consider and cancel the agreement, and to inform them of the costs of the broker's services. Code, 46A-6C-1 et seq., 46A-6C-6(a)(1), 46A-6C-7.

[8] KeyCite Notes

92B Consumer Credit

92BI In General

92Bk3 License and Regulation in General

92Bk4 k. Particular Businesses or Transactions. Most Cited Cases

A loan broker is a “credit service organization,” for purposes of the Consumer Credit and Protection Act (CCPA). Code , 46A-6C-2.

[9] KeyCite Notes

92B Consumer Credit

92BI In General

92Bk3 License and Regulation in General

92Bk4 k. Particular Businesses or Transactions. Most Cited Cases

A prospective borrower is a “buyer” for purposes of credit service organization provisions of the Consumer Credit and Protection Act (CCPA). Code, 46A-6C-1.

[10] KeyCite Notes

361 Statutes

361VI Construction and Operation

361VI(A) General Rules of Construction

361k187 Meaning of Language

361k190 k. Existence of Ambiguity. Most Cited Cases

If the language of an statutory enactment is clear and within the constitutional authority of the lawmaking body which passed it, courts must read the relevant law according to its unvarnished meaning, without any judicial embroidery.

[11] KeyCite Notes

92B Consumer Credit

92BI In General

92Bk16 k. Disclosure Requirements; Statements and Receipts. Most Cited Cases

Credit service organization provisions of the Consumer Credit and Protection Act (CCPA) impose various duties upon a loan broker in his or her dealings with prospective borrowers, including the duty to provide a written contract which meets the contractual requirements set forth in provision governing the form and terms of contract between a buyer and a credit services organization for purchase of services of the credit services organization; such a contract must contain, among other things, a full and detailed description of the services to be performed, a conspicuous statement informing the borrower of his or her right to cancel the contract for up to three days after the date of the transaction, and the terms and conditions of payment, including the total of all payments to be made by the borrower, whether to the loan broker or to another person. Code, 46A-6C-1 et seq., 46A-6C-6(a)(1), 46A-6C-7.

[12] KeyCite Notes

65 Brokers

65IV Duties and Liability to Principal

65k19 k. Nature of Broker's Obligation. Most Cited Cases

Where a loan broker acts as a true broker, and not a mere middleman, the broker is under a legal obligation to disclose to prospective borrowers all facts within his knowledge which are or may be material to the transaction for which he is employed or which might influence their action in relation to such transaction.

[13] KeyCite Notes

65 Brokers

65IV Duties and Liability to Principal

65k19 k. Nature of Broker's Obligation. Most Cited Cases

A broker must act with the utmost good faith towards his principal and is under a legal obligation to disclose to his principal all facts within his knowledge which are or may be material to the transaction in which he is employed or which might influence the action of his principal in relation to such transaction.

[14] KeyCite Notes

65 Brokers

65II Employment

65k7 k. Appointment or Employment. Most Cited Cases

Existence of an agency relationship between a loan broker and prospective borrowers is fact dependent, and absent proof that the borrowers had the right to, or did, exert some degree of control over the conduct of the broker, no agency can be found to exist.

[15] KeyCite Notes

308 Principal and Agent

308I The Relation

308I(A) Creation and Existence

308k7 Appointment of Agent

308k9 k. Agreements for Appointment. Most Cited Cases

308 Principal and Agent KeyCite Notes

308I The Relation

308I(A) Creation and Existence

308k14 Implied Agency

308k14(2) k. Conduct of Parties in General. Most Cited Cases

Proof of an express contract of agency is not essential to the establishment of the relation; it may be inferred from facts and circumstances, including conduct.

[16] KeyCite Notes

308 Principal and Agent

308I The Relation

308I(A) Creation and Existence

308k1 k. Nature of the Relation in General. Most Cited Cases

One of the essential elements of an agency relationship is the existence of some degree of control by the principal over the conduct and activities of the agent.

(Cite as: 204 W.Va. 229, 511 S.E.2d 854, **856)

(Cite as: 204 W.Va. 229, *231, 511 S.E.2d 854, **856)

Gallapoo v. Wal-Mart Stores, Inc., 197 W.Va. 172, 475 S.E.2d 172 (1996).
2. “ ‘ “In a certified case, this Court will not consider certified questions not necessary to a decision of the case.” Syllabus Point 6, West Virginia Water Serv. Co. v. Cunningham, 143 W.Va. 1, 98 S.E.2d 891 (1957).’ Syllabus Point 7, Shell v. Metropolitan Life Ins. Co., 181 W.Va. 16, 380 S.E.2d 183 (1989).” Syl. Pt. 5, Anderson v. Moulder, 183 W.Va. 77, 394 S.E.2d 61 (1990).
3. “ ‘The legislature in enacting the West Virginia Consumer Credit and Protection Act, W.Va.Code, 46A-1-101, et seq., in 1974, sought to eliminate the practice of including unconscionable terms in consumer agreements covered by the Act. To further this purpose the legislature, by the express language of W.Va.Code, 46A-5-101 (1), created a cause of action for consumers and imposed civil liability on creditors who include unconscionable terms that violate W.Va.Code, 46A-2-121 in consumer agreements.’ Syl. pt. 2, U.S. Life Credit Corp. v. Wilson, 171 W.Va. 538, 301 S.E.2d 169 (1982).” Syl. pt. 1, Orlando v. Finance One of West Virginia, Inc., 179 W.Va. 447, 369 S.E.2d 882 (1988).
4. “A determination of unconscionability must focus on the relative positions of the parties, the adequacy of the bargaining position, the meaningful alternatives available to the plaintiff, and ‘the existence of unfair terms in the contract.’ ” Syl. pt. 4, Art's Flower Shop, Inc. v. Chesapeake and Potomac Tel. Co., 186 W.Va. 613, 413 S.E.2d 670 (1991).
5. Where an arbitration agreement entered into as part of a consumer loan transaction contains a substantial waiver of the borrower's rights, including access to the courts, while preserving the lender's right to a judicial forum, the agreement is unconscionable and, therefore, void and unenforceable as a matter of law.
6. “If the language of an enactment is clear and within the constitutional authority of the law-making body which passed it, courts must read the relevant law according to its unvarnished meaning, without any judicial embroidery.” Syl. pt. 3, in part, West Virginia Health Care Cost Review Auth. v. Boone Mem. Hosp., 196 W.Va. 326, 472 S.E.2d 411 (1996).
7. “A broker must act with the utmost good faith towards his principal and is under a legal obligation to disclose to his principal all facts within his knowledge which are or may be material to the transaction in which he is employed or which might influence action of his principal in relation to such transaction.” Syl. Pt. 2, Moore v. Turner, 137 W.Va. 299, 71 S.E.2d 342 (1952).
8. “ ‘One of the essential elements of an agency relationship is the existence of some degree of control by the principal over the **857

conduct and activities of the agent.’ Syl. Pt. 3, Teter v. Old Colony Co., 190 W.Va. 711, 441 S.E.2d 728 (1994).” Syl. pt. 2, Thomson v. McGinnis, 195 W.Va. 465, 465 S.E.2d 922 (1995).

Daniel F. Hedges, Esq., Mountain State Justice, Inc., Charleston , West Virginia , Attorney for Plaintiffs.
W. Michael Moore, Esq., Rita Massie Biser, Esq., Kay, Casto, Chaney, Love & Wise, Charleston, West Virginia, Attorneys for Defendant United Companies Lending Corporation.

McCUSKEY, Justice:
Circuit Court of Lincoln County . In the action before the circuit court, the plaintiffs, Orville Arnold and Maxine Arnold, seek declaratory and other relief against the defendants, United Companies Lending Corporation (hereinafter “United Lending”) and Michael Searls. The Arnolds contend that an arbitration agreement, which they signed as part of a loan transaction, is void and unenforceable on several grounds. The relevant issues concern the validity of an arbitration agreement in the context of a consumer loan and the duties of loan brokers to prospective borrowers. Specifically, the certified questions state:

1. Whether a circuit court, upon being presented with a consumer credit contract requiring compulsory arbitration, should bifurcate the proceedings or otherwise make an initial determination as to the validity of the compulsory arbitration clause prior to proceeding with the remainder of the underlying substantive issues in the case.

2. Whether this compulsory arbitration clause in the context of a form document signed by a consumer in a consumer credit context which contains substantial waiver of substantive rights while preserving to the creditor a judicial forum is so one-sided as to be void as a matter of law.

3. Whether a loan broker owes a fiduciary duty to prospective borrowers (a) to provide a written agreement describing the services and agreements between them, (b) to give them an opportunity to consider and cancel the agreement, (c) to inform them of the cost of the broker's services, (d) to disclose the loan options and risks available to them, and (e) to act as an agent of the borrower and not of the lender.

The circuit court answered each of these questions in the affirmative.

On September 17, 1996, Michael Searls came to the residence of Orville and Maxine Arnold, an elderly couple living in Lincoln County , West Virginia . Searls offered to arrange a loan for the Arnolds , acting as a loan broker. At the conclusion of this encounter, the Arnolds paid Searls $50.00 to begin processing their loan.^FN1

FN1. A “Service Contract Agreement,” dated September 17, 1996, and attached to the Amended Complaint, contains handwritten markings which substantiate the fact that Searls received a $50.00 “application fee” from the Arnolds .

Thereafter, Searls procured a loan for the Arnolds from United Lending, and on October 18, 1996, the loan closing occurred. Out of the loan proceeds, a mortgage broker fee of $940.00 was paid to Searls and/or Accent Financial Services, with which Searls is affiliated.

At the loan closing, United Lending had the benefit of legal counsel, while the Arnolds apparently did not. During the course of the transaction, the Arnolds were presented with more than twenty-five documents to sign. Among these documents were a promissory note, reflecting a principal sum of $19,300.00 and a yearly interest rate of 12.990%; a Deed of Trust, giving United Lending a security interest in the Arnolds ' real estate; and a two-page form labeled “Acknowledgment and Agreement to Mediate or Arbitrate.” It is this arbitration agreement that is at the center of the parties' dispute.

*233

[that are not resolved by mediation] ... relating to the extension of credit (the ‘Loan’) by Lender to Borrower ... including ... the validity and construction of this arbitration provision shall be resolved solely and exclusively by arbitration.” “In addition, the agreement conspicuously stated in all capital letters:

THE ARBITRATION WILL TAKE THE PLACE OF ANY COURT PROCEEDING INCLUDING A TRIAL BEFORE A JUDGE AND JURY DAMAGES SHALL BE LIMITED TO ACTUAL AND DIRECT DAMAGES AND SHALL IN NO EVENT INCLUDE CONSEQUENTIAL, PUNITIVE, EXEMPLARY OR TREBLE DAMAGES AS TO WHICH BORROWER AND LENDER EXPRESSLY WAIVE ANY RIGHT TO CLAIM TO THE FULLEST EXTENT PERMITTED BY LAW.

Returning to regular type, the agreement continued: “The award rendered by the arbitration shall be final, nonappealable and judgment may be entered upon it ... in any court having jurisdiction,” and the “arbitration proceedings are confidential.” However, application of the agreement was expressly limited by the following language:

[T]his Agreement to ... arbitrate shall not apply with respect to either (i) the Lender's right ... to submit and to pursue in a court of law any actions related to the collection of the debt; (ii) foreclosure proceedings ..., proceedings pursuant to which Lender seeks a deficiency judgment, or any comparable procedures allowed under applicable law pursuant to which a lien holder may acquire title to the Property which is security for this loan and any related personal property ... upon a default by the Borrower under the mortgage loan documents; or (iii) an application by or on behalf of the Borrower for relief under the federal bankruptcy laws of [sic] any other similar laws of general application for the relief of debtors ....

FN2. Virtually this same language was set forth in paragraph 26 of the Deed of Trust, which the record indicates was signed by the Arnolds at the loan closing.

Sometime between January and May of 1997, the Arnolds paid off their loan from United Lending. Although this Court is cognizant of the seeming inconsistency between the Arnolds ' repayment of that loan and their maintenance of a lawsuit against United Lending, this matter is before us upon only a limited record for the resolution of certified questions. Thus, we must presume, despite the fact that the loan has been repaid, that some controversy remains before the circuit court.

On July 10, 1997, the Arnolds filed suit against United Lending and Searls, seeking, inter alia, a declaratory judgment adjudging the arbitration agreement to be void and unenforceable. On August 11, 1997, United Lending moved to dismiss the entire action, with prejudice, on the basis of the compulsory arbitration agreement. On September 19, 1997, United Lending filed a notice of withdrawal of its motion to dismiss. On or about September 22, 1997, the Arnolds moved for partial summary judgment against United Lending, seeking a declaratory judgment that the “arbitration clause” is void and unenforceable. As result of United Lending's motion to dismiss and the Arnolds ' motion for partial summary judgment, the circuit court certified the above questions to this Court. See W. Va.Code § 58-5-2 (1998).

[1] In Syllabus Point 1 of Gallapoo v. Wal-Mart Stores, Inc., 197 W.Va. 172, 475 S.E.2d 172 (1996), this Court held: “The appellate standard of review of questions of law answered and certified by a circuit court is de novo.” Accord King v. Lens Creek Ltd. Partnership, 199 W.Va. 136, 140, 483 S.E.2d 265, 269 (1996).

[2] Certified question one, as formulated by the circuit court, presents the following query:

**859

Whether a circuit court, upon being presented with a consumer credit contract requiring compulsory arbitration, should bifurcate the proceedings or otherwise make an initial determination as to the validity of the compulsory arbitration clause prior to proceeding with the remainder of the underlying substantive issues in the case.

After careful review and deliberation, this Court concludes that certified question one, as formulated by the circuit court, is unnecessary to the decision of this case. To the extent that certified question one involves the issue of the validity of the arbitration agreement, that issue is fully addressed by certified question two, which we answer below. “ ‘In a certified case, this Court will not consider certified questions not necessary to a decision of the case.’ Syllabus Point 6, West Virginia Water Serv. Co. v. Cunningham, 143 W.Va. 1, 98 S.E.2d 891 (1957), Syllabus Point 7, Shell v. Metropolitan Life Ins. Co., 181 W.Va. 16, 380 S.E.2d 183 (1989).” Syl. pt. 5, Anderson v. Moulder, 183 W.Va. 77, 394 S.E.2d 61 (1990). Therefore, we dispense with certified question one without further discussion.

[3] In considering certified question two, this Court finds it necessary to reframe the issue, at the outset, so that we can fully address the law that is involved.^FN3 We reformulate the question as follows:

FN3. This Court's authority to modify a certified question was addressed in Syllabus Point 3 of Kincaid v. Mangum, 189 W.Va. 404, 432 S.E.2d 74 (1963):

When a certified question is not framed so that this Court is able to fully address the law which is involved in the question, then this Court retains the power to reformulate questions certified to it under both the Uniform Certification of Questions of Law Act found in W.Va.Code, 51-1A-1, et. seq.

Whether an arbitration agreement entered into as part of a consumer loan transaction containing a substantial waiver of the consumer's rights, including access to the courts, while preserving for all practical purposes the lender's right to a judicial forum, is void as a matter of law.

The Arnolds argue that the arbitration agreement is void as a matter of law on the grounds that it is (1) unconscionable, (2) a contract of adhesion, and (3) contravenes public policy. For its counterargument, United Lending avers, in essence, that the waiver and reservation of rights which the agreement purports to effect are lawful and do not render the agreement unconscionable nor legally void.^FN4

FN4. Both parties raise the issue of whether the arbitration agreement is governed by the Federal Arbitration Act, 9 U.S.C. § et. seq. Resolution of that issue is not necessary in the matter before us.

“Unconscionability” is a general contract law principle, based in equity, ^FN5 which is deeply ingrained in both the statutory and decisional law of West Virginia . Of particular importance to this case are the provisions contained in the West Virginia Consumer Credit and Protection Act, W. Va.Code § 46A-1-101 et seq. (hereinafter “CCPA”), which were specifically designed to eradicate unconscionability in consumer transactions. W. Va.Code § 46A-2-121 (1996) of the CCPA provides, in relevant part:

FN5. As stated in Syllabus Point 1 of Troy Mining Corp. v. Itmann Coal Co., 176 W.Va. 599, 346 S.E.2d 749 (1986), “[u]nconscionability is an equitable principle, and the determination of whether a contract or a provision therein is unconscionable should be made by the court.”

(1) With respect to a transaction which is or gives rise to a consumer credit sale, consumer lease or consumer loan, if the court as a matter of law finds:

(a) The agreement or transaction to have been unconscionable at the time it was made, or to have been induced by unconscionable conduct, the court may refuse to enforce the agreement, or

(b) Any term or part of the agreement or transaction to have been unconscionable at the time it was made, the court may refuse to enforce the agreement, or may enforce the remainder of the agreement without the unconscionable term or part, or may so limit the application of any unconscionable **860

term or part as to avoid any unconscionable result.

The Arnolds invoke the CCPA, asserting that the arbitration agreement is unconscionable, in violation of W. Va.Code § 46A-2-121(1)(b), because it is manifestly unfair to consumers. The inequity, say the Arnolds, emanates from the terms of the agreement, which bind the consumer to relinquish his or her right to a day in court and virtually all substantive rights, while the lender retains the right to a judicial forum for purposes of collection and foreclosure proceedings, deficiency judgments, and all other procedures which the lender may pursue to acquire title to the borrower's real or personal property. For the reasons set forth below, we agree.

[4] “ ‘The legislature in enacting the West Virginia Consumer Credit and Protection Act, W.Va.Code, 46A-1-101, et seq., in 1974, sought to eliminate the practice of including unconscionable terms in consumer agreements covered by the Act. To further this purpose the legislature, by the express language of W.Va.Code, 46A-5-101(1), created a cause of action for consumers and imposed civil liability on creditors who include unconscionable terms that violate W.Va.Code, 46A-2-121 in consumer agreements.’ Syl. pt. 2, U.S. Life Credit Corp. v. Wilson, 171 W.Va. 538, 301 S.E.2d 169 (1982).” Syl. pt. 1, Orlando v. Finance One of West Virginia, Inc., 179 W.Va. 447, 369 S.E.2d 882 (1988). Although the CCPA contains no definition of “unconscionable,” this Court has previously looked to the definition furnished by the drafters of the Uniform Consumer Credit Code, which contains provisions concerning unconscionability that are identical to W. Va.Code § 46A-2-121(1)(a), (b) (1996):

The drafters of the Uniform Consumer Credit Code explained that the principle of unconscionability “is one of the prevention of oppression and unfair surprise and not the disturbance of reasonable allocation of risks or reasonable advantage because of superior bargaining power or position.” See Uniform Consumer Credit Code, § 5.108 comment 3, 7A U.L.A. 170 (1974). The drafters stated:

The basic test is whether, in the light of the background and setting of the market, the needs of the particular trade or case, and the condition of the particular parties to the conduct or contract, the conduct involved is, or the contract or clauses involved are so one sided as to be unconscionable under the circumstances existing at the time the conduct occurs or is threatened or at the time of the making of the contract.

Id. The drafters explained further that “[t]he particular facts involved in each case are of utmost importance since certain conduct, contracts or contractual provisions may be unconscionable in some situations but not in others.” Id.

Orlando, 179 W.Va. at 450, 369 S.E.2d at 885.

The parameters of the defense of unconscionability are further illuminated by this passage from Troy Mining Corp. v. Itmann Coal Co., 176 W.Va. 599, 346 S.E.2d 749 (1986), where this Court quoted the Restatement (Second) of Contracts:

A bargain is not unconscionable merely because the parties to it are unequal in bargaining position, nor even because the inequality results in allocation of risks to the weaker party. But gross inadequacy in bargaining power, together with terms unreasonably favorable to the stronger party, may confirm indications that the transaction involved elements of deception or compulsion or may show that the weaker party had no meaningful, no real alternative, or did not in fact assent or appear to assent to the unfair terms.

Id. at 604, 346 S.E.2d at 753 (emphasis omitted).

Moreover, in Syllabus Point 3 of Board of Educ. of Berkeley County v. W. Harley Miller, Inc., 160 W.Va. 473, 236 S.E.2d 439 (1977), this Court stated:

[W]here a party alleges that the arbitration provision was unconscionable, or was thrust upon him because he was unwary and taken advantage of, or that the contract was one of adhesion, the question of whether an arbitration provision was bargained for and valid is a matter of law for the court to determine by reference to the entire contract, the nature of the contracting**861

parties, and the nature of the undertakings covered by the contract.

Syl. pt. 1, Art's Flower Shop, Inc. v. Chesapeake and Potomac Tel. Co., 186 W.Va. 613, 413 S.E.2d 670 (1991) (“limitation of liability” clause held void for unconscionability).

[5] Based on these precepts, this Court held in Syllabus Point 4 of Art's Flower Shop, supra, that “[a] determination of unconscionability must focus on the relative positions of the parties, the adequacy of the bargaining position, the meaningful alternatives available to the plaintiff, and ‘the existence of unfair terms in the contract.’ ”

Applying the rule announced in Art's Flower Shop, supra,leads us to the inescapable conclusion that the arbitration agreement between the Arnolds and United Lending is “void for unconscionability” as a matter of law.^FN6 See id. at 618, 413 S.E.2d at 675. Indeed, the kind of agreement here at issue was aptly caricatured by this Court in Miller, supra, as “the contract between the rabbits and foxes.” The Miller Court stated:

FN6. We want to dispel the notion, which appears to have arisen in this case, that there are two distinct issues termed “procedural unconscionability” and “substantive unconscionability,” either one of which can invalidate a contract. This Court addressed the same misperception in Troy Mining Corp., supra, stating:

V & R also argues on appeal that the circumstances in which the 1979 contract were executed raise a separate issue of “procedural unconscionability,” or overall unconscionability based on unfairness or inequities in the bargaining process .... [W]e do not see it as an entirely separate “second bite” at the unconscionability apple. Whether a particular term in a contract is unconscionable often depends on the circumstances in which the contract was executed or the fairness of the contract as a whole, and therefore our analysis necessarily includes an inquiry beyond the face of the contract .... [T]he question of “procedural unconscionability” is an essential part of any determination of whether a particular clause or contract is unconscionable. A finding that the transaction was flawed, however, still depends on the existence of unfair terms in the contract. A litigant who complains that he was forced to enter into a fair agreement will find no relief on grounds of unconscionability.

In real life we can envisage arbitration provisions being imposed upon consumers in contract situations where consumers are totally ignorant of the implications of what they are signing, and where consumers bargain away many of the protections which have been secured for them with such difficulty at common law.

160 W.Va. at 486, 236 S.E.2d at 447. The scenario envisioned in Miller is now before us. The relative positions of the parties, a national corporate lender on one side and elderly, unsophisticated consumers ^FN7 on the other, were “grossly unequal.” See Art's Flower Shop, 186 W.Va. at 618, 413 S.E.2d at 675. In addition, there is no evidence that the loan broker made any other loan option available to the Arnolds . In fact, the record does not indicate that the Arnolds were seeking a loan, but rather were solicited by defendant Searls. Thus, the element of “a comparable, meaningful alternative” to the loan from United Lending is lacking. See id. Because the Arnolds had no meaningful alternative to obtaining the loan from United Lending, and also did not have the benefit of legal counsel during the transaction, their bargaining position was clearly inadequate when compared to that of United Lending.

FN7. According to the pleadings, Mr. Arnold is 69 years old with a fifth grade education, and Mrs. Arnold is 63 years old with an eighth grade education.

Given the nature of this arbitration agreement, combined with the great disparity in bargaining power, one can safely infer that the terms were not bargained for and that allowing such a one-sided agreement to stand would unfairly defeat the Arnolds ' legitimate expectations.

Finally, the terms of the agreement are “unreasonably favorable” to United Lending. Id. United Lending's acts or omissions could seriously damage the Arnolds , yet the Arnolds ' only recourse would be to submit the matter to binding arbitration. At the same time, United Lending's access to the courts is wholly preserved in every conceivable situation where United Lending would want to secure judicial relief against the Arnolds . Like the “rabbits and foxes situation,” discussed in Miller, supra, the wholesale waiver of the Arnolds ' rights together with the complete**862

preservation of United Lending's rights “is inherently inequitable and unconscionable because in a way it nullifies all the other provisions of the contract.” 160 W.Va. at 480, 236 S.E.2d at 443.

[6] Accordingly, under the circumstances of this action, we hold that where an arbitration agreement entered into as part of a consumer loan transaction contains a substantial waiver of the borrower's rights, including access to the courts, while preserving the lender's righ to a judicial forum, the agreement is unconscionable and, therefore, void and unenforceable as a matter of law.

[7] The third and final question certified to this Court concerns the legal duties of loan brokers relative to prospective borrowers. As set forth previously, the third certified question submitted by the circuit court is as follows:

Whether a loan broker owes a fiduciary duty to prospective borrowers (a) to provide a written agreemen

Whether a loan broker owes a duty to prospective borrowers: (a) to provide a written contract containing a description of the services to be performed, (b) to give them an opportunity to consider and cancel the agreement, (c) to inform them of the cost of the broker's services, and (d) to disclose the loan options and risks available to them.

Whether a loan broker acts as an agent of prospective borrowers.

[8] [9] Both the Arnolds and United Lending recognize that the Legislature has imposed certain duties upon a loan broker in relation to prospective borrowers. Indeed, the West Virginia Consumer Credit and Protection Act contains an entire article pertaining to “credit services organizations,” and as defined in that article, the term “credit services organizations” includes loan brokers.^FN9 See W. Va.Code § 46A-6C-1 et seq. (1991). Pursuant to W. Va.Code § 46A-6C-6 (1991), before executing a contract with a buyer,^FN10 or receiving money or other valuable consideration, a credit services organization must furnish the buyer with a written statement containing “[a] complete and detailed description of the services to be performed by the credit services organization for the buyer and the total cost of the services.” W. Va.Code § 46A-6C-6(a)(1) (1991). Moreover, W. Va.Code § 46A-6C-7 (1991)^FN11 mandates a **863

written contract for the services of a credit services organization and prescribes the contractual form and terms, including a conspicuous statement informing the consumer of his or her right to cancel the contract for up to three days after the date of the transaction. See W. Va.Code § 46A-6C-7(a)(1) (1991). The contract must also contain “[a] full and detailed description of the services to be performed” and “[t]he 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 another person.” W. Va.Code § 46A-6C-7(a)(2)-(3) (1991).

FN9. A “credit services organization” is defined, in relevant part, as “a person who, with respect to the extension of credit by others and in return for the payment of money or other valuable consideration, ... provides, or represents that the person can or will provide, any of the following services: ... (2) Obtaining an extension of credit for a buyer.” W. Va.Code § 46A-6C-2 (1991).

FN10. The term “buyer” is defined in Article 6C as “an individual who is solicited to purchase or who purchases the services of a credit services organization.” W. Va.Code § 46A-6C-1 (1991). We find that this definition includes “prospective borrowers.”

FN11. W. Va.Code § 46A-6C-7 (1991) provides:

(a) Each contract between the buyer and a credit services organization for the purchase of the services of the credit services organization must be in writing, dated, signed by the buyer, and must include:

(1) A statement in type that is boldfaced, capitalized, underlined, or otherwise set out from surrounding written materials so as to be conspicuous, 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 before midnight of the third 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 another 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 length of time, not to exceed one hundred eighty days, for performing the services; and

(4) The address of the credit services organization's principal place of business and the name and address of its agent in the state authorized to receive service or process.

(b) The contract must have attached two easily detachable copies of a notice of cancellation. The notice must be in boldfaced type and in the following form:

“Notice of Cancellation

You may cancel this contract, without any penalty or obligation, within three days after the date the contract is signed.

If you cancel, any payment made by you under this contract will be returned within ten days after the date of receipt by the seller of your cancellation notice.

To cancel this contract, mail or deliver a signed dated copy of this cancellation notice, or other written notice to: (name of seller) at (address of seller) (place of business) not later than midnight (date)

I hereby cancel this transaction.

(date)

(purchaser's signature)”

(c) The credit services organization shall give to the buyer a copy of the completed contract and all other documents the credit services organization requires the buyer to sign at the time they are signed.

[10] In Syllabus Point 3, in part, of West Virginia Health Care Cost Review Auth. v. Boone Mem. Hosp., 196 W.Va. 326, 472 S.E.2d 411 (1996), this Court held: “If the language of an enactment is clear and within the constitutional authority of the lawmaking body which passed it, courts must read the relevant law according to its unvarnished meaning, without any judicial embroidery.”^FN12

FN12. See also State ex rel. Riffle v. Ranson, 195 W.Va. 121, 126, 464 S.E.2d 763, 768 (1995) (“Once the Legislature indicates its preference by the enactment of a statute, the Court's role is limited. Our duty is to interpret the statute, not to expand or enlarge upon it.”); State ex rel. Frazier v. Meadows, 193 W.Va. 20, 24, 454 S.E.2d 65, 69 (1994) ( “Courts are not free to read into the language what is not there, but rather should apply the statute as written.”).

[11] The duties referenced in subparts (a), (b), and (c) of the certified question, as reframed by this Court, are clearly delineated by the foregoing statutory provisions. The constitutional authority of the Legislature in enacting these statutes is not in dispute. It is, therefore, incumbent upon this Court to read the relevant statutory language according to its “unvarnished meaning.” Thus, we find that W. Va.Code § 46A-6C1 et seq. (1991) imposes various duties upon a loan broker in his or her dealings with prospective borrowers, including the duty to provide a written contract which meets the contractual requirements set forth in W. Va.Code § 46A-6C-7 (1991). Pursuant to W. Va.Code § 46A-6C-7 (1991), such a contract must contain, among other things, a full and detailed description of the services to be performed, a conspicuous statement informing the borrower of his or her right to cancel the contract for up to three days after the date of the transaction, and the terms and conditions of payment, including the total of all payments to be made by the borrower, whether to the loan broker or to another person. Thus, we answer subparts (a), (b), and (c) of the certified question in the affirmative.

[12] Subpart (d) of certified question three, as modified, presents an issue not addressed by statutory law: Does a loan broker owe a duty to prospective borrowers to disclose the loan options and risks available to them? The answer to this question turns upon whether the loan broker is acting as a true “broker” or merely as a “middleman” with respect to the subject transaction, a distinction that is well established under the common law. The determination of this issue requires a thorough examination of the **864

pertinent facts. Ultimately, if a loan broker is acting as a “broker” in the strictest sense, the duty of disclosure exists. But if a loan broker acts as a mere “middleman,” the law imposes no duty of disclosure. Having given this short answer to subpart (d) of the certified question, we now proceed to discuss more fully the legal principles involved.

The term “broker” has been variously defined. In Moore v. Turner, 137 W.Va. 299, 71 S.E.2d 342 (1952), this Court recited the following definitions of a “broker:”

“A broker is one who is engaged for others, on a commission, in negotiating contracts relative to property with the custody of which he has no concern; * * *.” 12 C.J.S., Brokers, Section 1. “Every person whose business it is to negotiate purchases and sales of property with the custody of which he has no concern, neither with the original possession nor the delivery, is a broker.” Lawrence Gas Company v. Hawkeye Oil Company, 182 Iowa 179, 165 N.W. 445, 8 A.L.R. 192. “A broker is a fiduciary required to exercise fidelity and good faith toward his principal in all matters within the scope of his employment.” 8 Am.Jur., Brokers, Section 86. Some additional definitions of a broker are: “A person employed to sell property for another * * *.” Abraham v. Wasaff, 111 Okla. 165, 239 P. 138; a person “whose business it is to bring buyer and seller together.” Keys v. Johnson, 68 Pa. 42; and “ * * * a middleman whose business it is to bring seller and buyer together.” Ryan v. Walker, 35 Cal.App. 116, 169 P. 417.

Id. at 31, 71 S.E.2d at 349-50.

Significantly, this Court noted in Moore that “there is a well defined distinction between a middleman and a broker,” and “ ‘a middleman is not subject to the rules governing brokers.’ ” Id. at 312-13, 71 S.E.2d at 350. This Court described “ ‘ “a broker employed as a mere middleman,” ’ ” as “ ‘ “one engaged not to negotiate a sale or purchase, but simply to bring two parties together and permit them to make their own bargain.” ’ ” Id. at 314, 71 S.E.2d at 350. Expounding upon the distinction between a “broker” from a “middleman,” we stated:

“ ‘A broker is simply a middleman ... when he has no duty to perform but to bring the parties together, leaving them to negotiate and come to an agreement themselves without any aid from him. If he takes, or contracts to take, any part in the negotiations, however, he cannot be regarded a mere middleman, no matter how slight a part it may be.’ ”

Id. at 314, 71 S.E.2d at 350 (emphasis in original).

[13] Having distinguished a mere middleman from a true broker, this Court articulated a rule in Syllabus Point 2 of Moore, supra, imposing a duty of disclosure on brokers:

A broker must act with the utmost good faith towards his principal and is under a legal obligation to disclose to his principal all facts within his knowledge which are or may be material to the transaction in which he is employed or which might influence the action of his principal in relation to such transaction.

Since a middleman is not bound by the rules governing brokers, it follows that this duty of disclosure applies only where a true broker, and not just a middleman, is involved. Applying these principles to the facts of the instant case, we find that where a loan broker acts as a true broker, and not a mere middleman, the broker is under a legal obligation (i.e., a duty) to disclose to the prospective borrowers all facts within his knowledge which are or may be material to the transaction for which he is employed or which might influence their action in relation to such transaction.

[14] [15] [16] The final issue confronting this Court, as part of certified question three, is whether a loan broker acts as an agent of prospective borrowers. Like the duty of disclosure, the answer to this question is fact dependent; one must examine the facts of a particular case to determine whether an agency relationship exists. But “ ‘[p]roof of an express contract of agency is not essential to the establishment of the relation. It may be inferred from facts and circumstances, including conduct.’ ” General Elec. Credit Corp. v. Fields, 148 W.Va. 176, 181, 133 S.E.2d 780, 783 (1963). In Syllabus Point 2 **865

of Thomson v. McGinnis, 195 W.Va. 465, 465 S.E.2d 922 (1995), this Court stated:

“One of the essential elements of an agency relationship is the existence of some degree of control by the principal over the conduct and activities of the agent.” Syl. Pt. 3, Teter v. Old Colony Co., 190 W.Va. 711, 441 S.E.2d 728 (1994).

See Peters v. Riley, 73 W.Va. 785, 791, 81 S.E. 530, 532 (1914) (no agency found where “[a]ll the essential elements of the contract remained in the sole and exclusive control of the defendant”); see also Wright & Souza, Inc. v. DM Properties, 1 Neb.App. 822, 510 N.W.2d 413 (1993) (prospective borrower failed to establish that loan broker acted as borrower's agent where borrower had no control over broker). This Court further stated in Thomson that a principal denying agency must show that the principal neither controlled, nor had the right to control, the work, and “where factual conflict exists regarding the degree of control exercised and the nature of the relationship thereby created, jury resolution is warranted.” 195 W.Va. at 470, 465 S.E.2d at 927. Thus, in answer to the last part of certified question three, we emphasize that the existence of an agency relationship between a loan broker and prospective borrowers is fact dependent, and absent proof that the borrowers had the right to, or did, exert some degree of control over the conduct of the broker, no agency can be found to exist.

Certified Questions Answered.

Chief Justice DAVIS and Justices WORKMAN, STARCHER, and MAYNARD joined in the Opinion of the Court.

Justice McGRAW did not participate in the decision of this case.

Herrod v. First Republic Mortg. Corp., Inc., 218 W.Va. 611, 625 S.E.2d 373 (W. Va. , 2005).

Rita K. HERROD and Jennifer A. Herrod, Plaintiffs Below, Appellants,
v.
FIRST REPUBLIC MORTGAGE CORPORATION, INC., dba First Security Mortgage Corporation, A Corporation; Washtenaw Mortgage Company, A Corporation; Chase Manhattan Mortgage Corporation, A Corporation; Earl Young; Craddocks Last Stand, Inc., A Corporation; Darleen Westfall; West Virginia Real Estate Appraiser Licensing and Certification Board; and Federal National Mortgage Association, Defendants Below, Appellees.

Submitted Sept. 14, 2005.
Decided Dec. 1, 2005.
Concurring and Dissenting Opinion Justice Davis Dec. 7, 2005.
Concurring Opinion of Justice Starcher Dec. 16, 2005.

Background: Home mortgagors brought claims against assignee of original mortgagee for violations of Consumer Credit and Protection Act, fraud, unfair or deceptive practices, unconscionability, and liability based on joint venture, agency, or conspiracy, relating to original mortgagee's allegedly illegal and predatory lending practices. The Circuit Court, Kanawha County , James C. Stucky, J., granted summary judgment to defendant. Plaintiffs appealed.

Holdings: The Supreme Court of Appeals, Albright, C.J., held that:
(1) genuine issues of material fact precluded summary judgment on claim of unconscionability;
(2) assignee of mortgage was not required to ensure original mortgagee's compliance with credit services organizations provisions of Consumer Credit and Protection Act;
(3) assignee was not liable for original mortgagee's allegedly fraudulent representations;
(4) credit services organizations provisions of Consumer Credit and Protection Act do not extend to or prohibit a licensed lender's use of yield spread premiums;
(5) genuine issue of material fact precluded summary judgment as to assignee's liability under theories of joint venture, agency, or conspiracy.

Affirmed in part, reversed in part, and remanded.

Davis, J., filed an opinion concurring in part and dissenting in part, in which Maynard, J., joined.

Starcher, J., filed an opinion concurring in the judgment.

[1] KeyCite Notes

30 Appeal and Error

30XVI Review

30XVI(F) Trial De Novo

30k892 Trial De Novo

30k893 Cases Triable in Appellate Court

30k893(1) k. In General. Most Cited Cases

A circuit court's entry of summary judgment is reviewed de novo.

[2] KeyCite Notes

228 Judgment

228V On Motion or Summary Proceeding

228k181 Grounds for Summary Judgment

228k181(2) k. Absence of Issue of Fact. Most Cited Cases

A motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law.

[3] KeyCite Notes

228 Judgment

228V On Motion or Summary Proceeding

228k182 Motion or Other Application

228k185 Evidence in General

228k185(6) k. Existence or Non-Existence of Fact Issue. Most Cited Cases

Summary judgment is appropriate if, from the totality of the evidence presented, the record could not lead a rational trier of fact to find for the nonmoving party, such as where the nonmoving party has failed to make a sufficient showing on an essential element of the case that it has the burden to prove.

[4] KeyCite Notes

228 Judgment

228V On Motion or Summary Proceeding

228k181 Grounds for Summary Judgment

228k181(15) Particular Cases

228k181(15.1) k. In General. Most Cited Cases

Where unconscionability is asserted under the Consumer Credit and Protection Act, the existence of questions of fact regarding whether the bargaining power was grossly unequal and thereby rendered the transactions between the plaintiffs and defendants unconscionable precludes the resolution of such claims through summary judgment; only when there are no factual disputes in existence can an unconscionability claim under the Act be determined as a question of law based on the undisputed factual circumstances and resolved through summary judgment. (Per Albright, C.J., with one Justice concurring and one Justice concurring in the judgment.) West's Ann.W.Va.Code, 46A-2-121.

[5] KeyCite Notes

228 Judgment

228V On Motion or Summary Proceeding

228k181 Grounds for Summary Judgment

228k181(15) Particular Cases

228k181(25) k. Mortgage Cases. Most Cited Cases

Genuine issues of material fact as to whether fees that home mortgagors paid to original mortgagee were excessive and whether appraisal of home, obtained by original mortgagee in connection with origination of the loan, was inflated, precluded summary judgment for original mortgagee's assignee, in mortgagors' action alleging unconscionability under Consumer Credit and Protection Act. (Per Albright, C.J., with one Justice concurring and one Justice concurring in the judgment.) West's Ann.W.Va.Code, 46A-2-121.

[6] KeyCite Notes

92B Consumer Credit

92BI In General

92Bk3 License and Regulation in General

92Bk4 k. Particular Businesses or Transactions. Most Cited Cases

Even if original mortgagee in home mortgage transaction was required, as licensed lender, to comply with credit services organizations (CSO) provisions of Consumer Credit and Protection Act, assignee of mortgage was not required to ensure original mortgagee's compliance with Act's CSO provisions. West's Ann.W.Va.Code, 31-17-8(k), 46A-6C-1 et seq.

[7] KeyCite Notes

266 Mortgages

266V Assignment of Mortgage or Debt

266k262 k. Liabilities of Assignee. Most Cited Cases

Assignee of home mortgage was not liable for allegedly fraudulent representations, made by original mortgagee's loan broker, to mortgagors, that broker would get them the best rate he could, which representation was allegedly made before loan closing, and that he was cutting original mortgagee's fees so there would be “enough room to do the loan,” which representation was allegedly made at loan closing, where assignee did not have any contact with mortgagors until after the loan closing.

[8] KeyCite Notes

92B Consumer Credit

92BI In General

92Bk10 Interest and Charges

92Bk11 k. Rate and Amount of Interest or Finance Charge. Most Cited Cases

Credit services organizations (CSO) provisions of Consumer Credit and Protection Act, prohibiting unfair or deceptive acts or practices, do not extend to or prohibit a licensed lender's use of yield spread premiums, in home mortgage loan transactions. West's Ann.W.Va.Code, 31-17-8(k), 46A-6C-3.

[9] KeyCite Notes

228 Judgment

228V On Motion or Summary Proceeding

228k181 Grounds for Summary Judgment

228k181(15) Particular Cases

228k181(25) k. Mortgage Cases. Most Cited Cases

Genuine issue of material fact as to whether original mortgagee, and assignee of mortgagee, had an arrangement with regard to loan approval precluded summary judgment for assignee, in home mortgagors' action alleging that assignee was liable, under theories of joint venture, agency, or conspiracy, for original mortgagee's allegedly illegal and predatory lending practices. (Per Albright, C.J., with one Justice concurring and one Justice concurring in the judgment.)

(Cite as: 218 W.Va. 611, 625 S.E.2d 373, **374)

(Cite as: 218 W.Va. 611, *612, 625 S.E.2d 373, **374)

1. “A circuit court's entry of summary judgment is reviewed de novo.” Syl. Pt. 1, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994).
2. “A motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law.” Syl. Pt. 3, *613

Aetna Cas. & Sur. Co. v. Federal Ins. Co., 148 W.Va. 160, 133 S.E.2d 770 (1963).
3. “Summary judgment is appropriate if, from the totality of the evidence presented, the record could not lead a rational trier of fact to find for the nonmoving party, such as where the nonmoving party has failed to make a sufficient showing on an essential element of the case that it has the burden to prove.” Syl. Pt. 2, Williams v. Precision Coil, Inc., 194 W.Va. 52, 459 S.E.2d 329 (1995).
4. Where unconscionability is asserted under West Virginia Code § 46A-2-121 (1996) (Repl. Vol. 1999), the existence of questions of fact regarding whether the bargaining power was grossly unequal and thereby rendered the transactions between the plaintiffs and defendants unconscionable precludes the resolution of such claims through summary judgment. Only when there are no factual disputes in existence can an unconscionability claim under West Virginia Code § 46A-2-121 be determined as a question of law based on the undisputed factual circumstances and resolved through summary judgment.

Bren J. Pomponio, Daniel F. Hedges, Mountain State Justice, Inc., Charleston, for the Appellants.
R. Terrance Rodgers, Nicholas P. Mooney, Pamela C. Deem, Allen, Guthrie, McHugh & Thomas, Charleston, for the Appellee, Washtenaw Mortgage Company.

ALBRIGHT, Chief Justice:
Appellants Rita Herrod and Jennifer Herrod (collectively referred to as the “Herrods”) seek relief from an adverse summary judgment ruling issued by the Circuit Court of Kanawha County in connection with an illegal and predatory lending practices action they filed against Appellee Washtenaw Mortgage Co. (“Washtenaw”).^FN1 Upon our full review of the record before us and consideration of the arguments of counsel, we determine that summary judgment was improperly granted with regard to some of the claims asserted by Appellants due to the existence of certain issues of fact that remain to be determined. Accordingly, the decision of the lower court is affirmed, in part, reversed, in part, and this matter is remanded for further proceedings consistent with the holdings of this opinion.

FN1. Washtenaw is the only remaining defendant of the various individuals and businesses that were sued by the Herrods after settlement and dismissals as a result of previous summary judgment rulings.

The Herrods, who are mother and daughter, reside in a home located in Clarksburg , West Virginia , that Mrs. Herrod purchased in July 1994 for the amount of $22,000.^FN2 In April of 1999, the Herrods refinanced the home with a construction loan from a local bank. The loan amount of $51,484.67 ^FN3 was initially applied to pay off the first mortgage and the remainder was used for improvements to the home.

FN2. Although Mrs. Herrod originally purchased the home for her daughter, she moved into the home to live with Jennifer Herrod and her four grandchildren in September 1998.

FN3. The initial annual percentage rate for the fifteen-year adjustable rate loan was 7.820%.

In March 2000, while working at Heilig-Myers as a Credit Manager, Jennifer Herrod was approached by Earl Young, a loan broker for First Security Mortgage Corporation (“First Security”) ^FN4 while he was handing out business cards for First Security. When Ms. Herrod decided to respond to Mr. Young's solicitation, he represented that he would search for a home loan on her behalf that carried a lower interest rate than her existing loan.^FN5

FN4. Ms. Herrod was familiar with Mr. Young, as he was a process server for Heilig-Myers.

FN5. Ms. Herrod decided to contact Mr. Young when she learned that the interest rate on her mortgage was about to increase to 9.125%. See supra note 3.

On April 5, 2000, Bob Cress, who was Mr. Young's boss and the vice-president of First Security, came to the Herrod residence to collect information germane to the loan application. Based upon Mr. Cress's inspection of the home on that date, he informed the Herrods*614

that their home was worth between $118,000 and $138,000. The figure of $138,000 was placed on the loan application with regard to the estimated value of the home. During this litigation, the Herrods testified that their personal estimate of the subject home's worth at the time was $70,000.^FN6

FN6. This valuation was purportedly based on a prior appraisal performed in connection with refinancing they procured in 1999 to perform certain home improvements.

During that April 5, 2000, meeting at their home, the Herrods completed a handwritten loan application.^FN7 Although Rita Herrod volunteered to Mr. Young that she would not be employed a month from the estimated loan closing date, she testified that Mr. Young assured her that their future income was of no consequence to the issuance of the loan.^FN8 Appellants maintain that when Messrs. Young and Cress left their home, they did not leave any documents with the Herrods. The record in this case, however, contains various lending documents that bear their signatures.^FN9 The Herrods do not disclaim the authenticity of the signatures on those forms, just that “they were totally unaware of what the documents were” since they allege they were not given copies of the signed documents when the brokers departed.

FN8. During her deposition, Mrs. Herrod was questioned regarding disclosures she made about her employment situation:

Q. At the time you filled out the application, where were you working?

A. Actually, I was on a severance package from Byard Mercer Pharmacy.

Q. So your employment had already terminated?

A. Correct, and I told Mr. Young that, and he said that it didn't matter. All that mattered was today, and as long as I was still getting a paycheck, that that's all that mattered.

FN9. Those documents include a Retention Agreement; a Disclosure Statement; a Mortgage Loan Origination Agreement; a Good Faith Estimate; and a Truth-in-Lending Disclosure Statement. The first three documents were signed on April 5, 2000, and the last two were mailed to the Herrods on April 6, 2000, and signed in advance of the closing that took place on April 24, 2000.

Following the home visit, the loan brokers prepared an appraisal request form on which Mr. Young provided two figures suggesting alternative values of $118,000 and $137,000 for the Herrod home. The form was transmitted by facsimile to Mr. Jack Weaver who worked for a real estate appraisal company known as Craddock's Last Stand in Parkersburg , West Virginia . Purportedly, there was an arrangement between Mr. Weaver and First Security whereby Mr. Weaver would provide inflated appraisals in connection with loans being pursued by First Security.^FN10 When the appraisal report came back, the Herrod home was valued at $118,000.^FN11

FN10. The arrangement purportedly involved the use of two figures on the appraisal request form; one being a “deal breaker” and the other a so-called “Christmas figure.” Mr. Weaver would instruct one of his appraisers to inspect the property and then someone in the home office would complete the report by providing the comparables necessary to obtain the value sought by the loan broker.

FN11. Later when the Herrods tried to place their home on the market, they were told by a local realtor that the home could not sell for more than $70,000 to $75,000.

On April 24, 2000, the Herrods went to First Security's office in Clarksburg , West Virginia , to close the loan. At the closing, Mr. Young told the Herrods that the lower appraisal amount ($118,000, rather than the hoped for $137,000) required them to reduce their broker fees to “have enough room to do the loan.” In actuality, the loan documents indicate that more than $10,000 in fees ^FN12 were paid in connection with the loan issued by Washtenaw to the Herrods. These fees included a $3,052 payment from Washtenaw to First Security for obtaining the Herrods' signature on a higher interest rate loan. This payment, which Appellants characterize as a “kickback,” was in the form of a yield *615

spread premium, which is ostensibly paid to the broker by the lender for the purpose of enabling the borrower to avoid higher up front fees at the closing. See generally Culpepper v. Inland Mortgage Corp., 132 F.3d 692 (11th Cir.1998) (discussing operation of yield spread premiums). The cost to the borrower for this arrangement is payment of a higher interest rate on the loan they obtain instead of the lower rate for which they qualified.

The promissory note the Herrods executed at closing provided for monthly payments of $759.56 ^FN13 for a thirty-year loan term and carried a 9% annualized interest rate. With the loan proceeds, the Herrods refinanced their previous mortgage; paid off credit card debt; ^FN14 and received $9,936.25 in cash. As part of the closing costs, the Herrods paid $419.83 to Washtenaw and $6,965 to First Security. On or after the closing, Washtenaw paid $3,304 to First Security.^FN15

FN13. The Herrods testified that the loan from Washtenaw reduced the interest rate on their mortgage payment and also reduced their monthly payments by $500 or $600.

FN14. The complaint provides figures indicating that proceeds from the Washtenaw loan were used to pay off $23,211 in credit card debt and $1600 was repaid to a 401(K) plan.

Seven weeks after the closing, Federal National Mortgage Association (“Fannie Mae”) purchased the Herrods' loan with Washtenaw. After a civil action was initiated by the Herrods on September 27, 2001, and Fannie Mae became aware of the fact that the fees Washtenaw charged the Herrods exceeded the 5% cap they place on the loans they purchase,^FN16 it sold the loan to Chase Manhattan Mortgage.^FN17 During the pendency of this civil action, Rita Herrod testified ^FN18 before the United States Senate Committee on Banking, Housing, and Urban Affairs concerning her loan experience with respect to the issue of the abusive use of yield spread premiums and predatory lending practices.

FN17. See infra note 19. While we do not rely on the entry of a stipulated order of dismissal on October 27, 2004, after the entry of the summary judgment ruling under consideration wherein Appellants dismissed any claims they had against Chase Manhattan Mortgage, we note for clarification purposes only that Washtenaw repurchased the loan at issue from Chase Manhattan Mortgage, who was the servicer of the loan, after Fannie Mae learned that the loan terms were in violation of its corporate policy with regard to fee charging.

FN18. On January 8, 2002, Rita Herrod testified to the Senate Committee that if Mr. Young had not taken a kickback through the use of the yield spread premium, she would have obtained a loan interest rate of 8.5% or lower. She further opined: “I do not think it was worth $10,000 [in fees] to get a loan that is worse than what I had.”

Through the complaint they filed against First Security, Washtenaw, Chase Manhattan Mortgage,^FN19 Earl Young Craddock's Last Stand, Darleen Westfall,^FN20 and West Virginia Real Estate Appraiser Licensing and Certification Board, the Herrods asserted various claims allegedly grounded in illegal and predatory lending practices. Following discovery, Washtenaw filed a motion for summary judgment upon which the trial court heard argument on December 4, 2003. At the end of the hearing, the circuit court granted summary judgment to Washtenaw on various claims asserted against them in the second amended complaint.^FN21 The Herrods did not appeal the granting of summary judgment as to those claims, which were memorialized in a January 21, 2004, order. At end of the summary judgment hearing, the trial court directed counsel for the Herrods and Washtenaw*616

to submit proposed findings of fact and conclusions of law on the remaining claims. On June 23, 2004, the trial court granted summary judgment to Washtenaw on the remaining claims asserted by the Herrods. It is from that second summary judgment ruling that the Herrods seek relief.

FN19. Chase Manhattan Mortgage was the servicer for the loan when it was owned by Fannie Mae. After suit was filed, Chase purchased the loan from Fannie Mae for repurchase by Washtenaw.

FN21. Those claims include allegations concerning the non-registration by First Security as a credit services organization; breach by Washtenaw of a fiduciary duty to the Herrods; engagement by Washtenaw in the unauthorized practice of law; engagement by Washtenaw in fraud and conspiracy with regard to the appraisal of the Herrods' home; various claims grounded in dishonesty, misrepresentation, and breach of professional standards; acceptance of fee contingent upon predetermined conclusion; and failure to supervise appraisers.

[1] [2] [3] As this Court stated in syllabus point one of Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994), “[a] circuit court's entry of summary judgment is reviewed de novo.” In syllabus point three of Aetna Casualty & Surety Co. v. Federal Insurance Company, 148 W.Va. 160, 133 S.E.2d 770 (1963), this Court explained: “A motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law.” We further elucidated in syllabus point two of Williams v. Precision Coil, Inc., 194 W.Va. 52, 459 S.E.2d 329 (1995): “Summary judgment is appropriate if, from the totality of the evidence presented, the record could not lead a rational trier of fact to find for the nonmoving party, such as where the nonmoving party has failed to make a sufficient showing on an essential element of the case that it has the burden to prove.” Just as is required by the lower court, this Court must “draw any permissible inference from the underlying facts in the light most favorable to the party opposing the motion.” Painter, 192 W.Va. at 192, 451 S.E.2d at 758. With these standards in mind, we proceed to determine whether the grant of summary judgement to Washtenaw was precipitous under the facts of this case.

In granting summary judgment to Washtenaw on the remaining claims through the June 23, 2004, order, the trial court ruled that Washtenaw was entitled to judgment on the Herrods' claim that the loan was illegal on grounds of unconscionability. In making this ruling, the trial court cited Hager v. American General Finance, Inc., 37 F.Supp.2d 778 (S.D.W.Va.1999) for the proposition that “[u]nconscionability claims asserted under W.Va.Code § 46A-2-121 can be disposed of on summary judgment.” Hager does recognize that the statutory claim of unconscionability in West Virginia “is a question of law to be determined based on the factual circumstances of the case” and consequently can be determined at the summary judgment stage. 37 F.Supp.2d at 787. But Hager equally stands for the proposition that where there are questions of fact regarding “whether the parties' bargaining power was grossly unequal so as to render the transactions between the plaintiffs and defendants unconscionable,” summary judgment is improper. Id.

In Hager, the district court looked to the unsophisticated and uneducated nature of the plaintiffs to determine that, upon examination of the evidence presented in the light most favorable to the plaintiffs, genuine issues of fact precluded resolution of the unconscionability claim through summary judgment. Explaining the considerations relevant to such a claim, the district court opined:

A determination of unconscionability must focus on the relative positions of the parties, the adequacy of the bargaining position, and the existence of meaningful alternatives available to the plaintiffs. A bargain may be unconscionable if there is “gross inadequacy in bargaining power, together with terms unreasonably favorable to the stronger party....” Gross inadequacy in bargaining power may exist where consumers are totally ignorant of the implications of what they are signing, ... or where the parties involved in the transaction include a national corporate lender on one side and unsophisticated, uneducated consumers on the other,....

Hager, 37 F.Supp.2d at 786-87 (citations omitted). The Hager plaintiffs' lack of sophistication, lack of education, and the allegation that they did not understand what they were signing all combined to convince the appellate court that questions of fact remained as to whether the credit transactions at issue were unconscionable. 37 F.Supp.2d at 787.

**379

The facts of this case, as presented by Appellants, arguably involve at least one unsophisticated and relatively uneducated plaintiff, given that Mrs. Herrod dropped out of school after the tenth grade.^FN22 Appellants aver that although Jennifer Herrod worked in the collections department of Heilig-Myers, she was not familiar with mortgage transactions and she was unaware of the details of the loan terms. The Herrods maintain the closing was a rushed ordeal with little or no explanation offered as to the various documents handed to them for signing. Purportedly, the closing agent was late to the lunch hour closing; ^FN23 was new to the position; and knew very little about the papers she handed to the Herrods to sign.

FN22. Our review of the record, however, indicates that Mrs. Herrod did obtain her G.E.D.

FN23. The closing was held on Jennifer Herrod's lunch hour. Appellants suggest that the hurried nature of the closing is demonstrated by the fact that some of the documents signed indicate that the closing occurred in Parkersburg, when in fact the closing took place in the Clarksburg office of First Security.

In Arnold v. United Companies Lending Corp., 204 W.Va. 229, 511 S.E.2d 854 (1998), this Court emphasized how critical the facts of each case are in determining whether a particular transaction or agreement is unconscionable. After acknowledging that the West Virginia Consumer Credit and Protection Act ^FN24 fails to define the term “unconscionable,” we referenced our previous reliance on the definition provided in the Uniform Consumer Credit Code based on the identical language of the provisions. Id. at 235, 511 S.E.2d at 860.

The drafters of the Uniform Consumer Credit Code explained that the principle of unconscionability “is one of the prevention of oppression and unfair surprise and not the disturbance of reasonable allocation of risks or reasonable advantage because of superior bargaining power or position.” See Uniform Consumer Credit Code, § 5.108 comment 3, 7A U.L.A. 170 (1974). The drafters stated:

The basic test is whether, in the light of the background and setting of the market, the needs of the particular trade or case, and the condition of the particular parties to the conduct or contract, the conduct involved is, or the contract or clauses involved are so one sided as to be unconscionable under the circumstances existing at the time the conduct occurs or is threatened or at the time of the making of the contract.

Id. The drafters explained further that “ [t]he particular facts involved in each case are of utmost importance since certain conduct, contracts or contractual provisions may be unconscionable in some situations but not in others.” Id.

204 W.Va. at 235, 511 S.E.2d at 860 (emphasis supplied).

[4] Accordingly, we hold that where unconscionability is asserted under West Virginia Code § 46A-2-121, the existence of questions of fact regarding whether the bargaining power was grossly unequal and thereby rendered the transactions between the plaintiffs and defendants unconscionable precludes the resolution of such claims through summary judgment. Only when there are no factual disputes in existence can an unconscionability claim under West Virginia Code § 46A-2-121 be determined as a question of law based on the undisputed factual circumstances and resolved through summary judgment. See Mallory v. Mortgage America, Inc., 67 F.Supp.2d 601, 612 (S.D.W.Va.1999) (stating that “[u]nconscionability claims should but rarely be determined based on the pleadings alone with no opportunity for the parties to present relevant evidence of the circumstances surrounding the consummation of the contractual relationship”).

[5] In ruling against the Herrods on their claim of unconscionability, the trial court found, inter alia, that “[t]he Herrods have produced no evidence that the fees paid to First Security were ‘excessive’ ” and also that “[t]he Herrods have produced no evidence that Ms. Westfall's appraisal of the Herrods' residence was somehow fraudulent or that she somehow misrepresented the true market*618

value of the Herrods' residence.” Our review of the record indicates that the Herrods have introduced sufficient evidence on each of these issues to present questions of fact. The record contains the loan agreements which, on their face, demonstrate fees that amount to more than 10.5 % of the loan amount.^FN25 As evidence of the alleged excessive nature of the fees charged in connection with their loan, Appellants refer to the fact that up-front fees in excess of 8% of the total loan amount are indicia of a “high cost” loan under federal law.^FN26 Further evidence upon which Appellants rely to prove the excessiveness of the fees is the buy-back of the loan that occurred when Fannie Mae discovered that the fees charged by Washtenaw were in violation of its corporate policy.^FN27 In the report of Appellants' expert, Mr. Kevin P. Byers, that is a part of the record,^FN28 HE DISCUSSES HOW the proximity of the loan at issue to the passage of the West Virginia Predatory Lending Law ^FN29 suggests opportunistic fee charging. ^FN30 While we note that this evidence of allegedly excessive fees could not be used to establish a claim under the West Virginia Predatory Lending Law that did not take effect until after the loan transaction at issue transpired, such evidence can properly be considered in connection with Appellants' claim of unconscionability.^FN31

FN25. While the yield spread premium is not directly paid by the consumer, the consumer does incur additional costs throughout the life of the loan because of the increased percentage rate at which the loan is granted. As Appellants' expert, Kevin P. Byers, explained in his report: “Actual compensation paid to broker First Security on the Herrod loan ... includes $6,600 [broker fee and loan origination fee] in fees alone, all of which were financed into the loan. The yield spread added $3,304 in additional fees to First Security, paid by the Herrods through a higher note rate, bringing total compensation to $9,904.00, or roughly 10.5% of the loan amount....”

FN26. See 15 U.S.C. § 1602(aa)(1)(B) (2000) (recognizing that loan is covered by federal Home Ownership and Equity Protection Act where up-front finance charges exceed 8% of “total loan amount”). Effective July 1, 2000, West Virginia enacted its own predatory lending law which prohibits the charging of cumulative loan fees in excess of 6% of the loan amount, including any yield spread premium. See W.Va.Code § 31-17-8(m)(4) (2002) (Repl. Vol. 2003).

FN27. While Washtenaw takes the position that the record only contains this evidence by virtue of a consent decree that post-dates the entry of the summary judgment ruling at issue, the report of Appellants' expert, Mr. Kevin P. Byers, which is a part of the record considered by the trial court because it is attached as an exhibit to the findings of fact and conclusions of law expressly required by the trial court, clearly sets forth the factual basis for the loan buy back by explaining the adoption of the Fannie Mae policy on April 11, 2000, regarding excessive fees. See Haga v. King Coal Chevrolet Co., 151 W.Va. 125, 132, 150 S.E.2d 599, 603 (1966) (holding that upon motion for summary judgment all exhibits and affidavits and other matters submitted by both parties should be considered). Furthermore, the affidavits submitted in support of Fannie Mae's motion for summary judgment clearly document the selling of the loan by Fannie Mae following the filing of the Herrods' lawsuit. Because the non-moving party is entitled to inferences from the evidence on a motion for summary judgment, the evidence clearly suggests that the buy back was initiated by Fannie Mae because of the excessive fees charged to the Herrods. See Cavender v. Fouty, 195 W.Va. 94, 464 S.E.2d 736 (1995) (recognizing that non-movant is entitled to benefit of inferences on summary judgment motion).

FN30. Mr. Byers states: “The opportunistic and excessive nature of the First Security charges appear that much more egregious in light of the timing of the Herrod closing given that First Security would be prohibited by state law from such profiteering at the expense of borrowers within nine weeks of the closing.” In his report, Mr. Byers also concludes that the loan was a “predatory loan” based on the fees charged under the guidelines established by Fannie Mae.

FN31. The trial court appears to have placed undue emphasis on the lack of a law in effect at the time of the closing that capped mortgage broker fees.

As to the trial court's finding that the record is devoid of evidence demonstrating that the appraisal performed by Ms. Westfall was either fraudulent or that she misrepresented the true market value of the Herrods' home, we find evidence that clearly suggests an inflated appraisal of the home. When the Herrods were having trouble meeting their mortgage payments, they attempted to place their home on the market and learned that it was only likely to be listed in the $70,000 to $75,000 range. The deposition testimony of *619

the Herrods indicates that they discovered that their house was worth at least $20,000 less than the amount for which it was mortgaged. In addition, Mrs. Herrod testified that two of the four comparables used in the appraisal performed by Ms. Westfall were homes in Bridgeport, where the real estate market is purportedly higher than in Clarksburg.^FN32 The record also contains documentation that Ms. Westfall entered into a consent decree with the Licensing and Certification Board of the West Virginia Real Estate Appraiser based on the Board's finding of reasonable cause to believe she had deviated from “generally accepted standards of professional appraisal practices as they relate to geographic competency in connection with the valuation of certain real property.”^FN33 When all of these factors are viewed together and the permissible inferences from such evidence considered, we would be hard pressed not to find error with the trial court's finding that the appraisal prepared in connection with the Herrod residence by Ms. Westfall was an accurate reflection of the market value of such home.

FN32. Ms. Westfall testified to the use of the non-Clarksburg comparables in performing the appraisal and further acknowledged that some of the homes used for comparison purposes had square footage amounts much larger than the Herrods' home.

FN33. Through the decree that was signed on July 3, 2002, Ms. Westfall agreed to pay the $500 costs of the investigation; take a 15 hour course on the sales comparison approach; and to abide by the rules of the Board as well as applicable state laws. The decree indicates that Ms. Westfall does not admit to having deviated from generally accepted appraisal practices.

Upon our review of the record, we are compelled to conclude that genuine issues of material fact preclude an award of summary judgment to Washtenaw on the Herrods' claim that the loan at issue is unconscionable. Given that these claims are highly fact dependent and that the record, when viewed in the light most favorable to the Herrods, clearly presents issues of fact concerning the “gross inadequacy in bargaining power” and the “existence of meaningful alternatives available to the plaintiffs,” we reverse and remand on this issue of unconscionability. Hager, 37 F.Supp.2d at 786-87.

[6] The trial court concluded that Washtenaw was entitled to summary judgment on the Herrods' claim that First Securities failed to comply with the credit services organizations (“CSO”) provision of the West Virginia Consumer Credit and Protection Act (the “Act”).^FN34 Under West Virginia Code § 31-17-8(k), it is provided that

[n]o licensee shall charge a borrower or receive from a borrower money or other valuable consideration as compensation before completing performance of all services the licensee has agreed to perform for the borrower unless the licensee also registers and complies with all requirements set forth for credit service organizations in article six-c [§§ 46A-6C-1 et seq.], chapter forty-six-a of this code....

In Brown v. Mortgagestar, Inc., 194 F.Supp.2d 473 (S.D.W.Va.2002), the district court held that the CSO provisions of the Act will only apply to a mortgage broker if that mortgage broker charges or receives money from the borrower before completing performance of all services that the mortgage broker has agreed to perform for that borrower. Id. at 476, n. 4. The district court further determined that where the broker fee is paid at the loan closing, the CSO provisions are inapplicable. Id. Applying Brown, the trial court concluded that because First Securities did not collect a fee from the Herrods prior to the loan closing it was not required to comply with the CSO provisions of the Act.

The Herrods were seeking to rely on the Act to hold Washtenaw liable for the alleged failure of First Security to provide the Herrods with a copy of a broker agreement setting forth their fees and a right to cancel the agreement. ^FN35 The trial court ruled that *620

even if First Security was required to comply with the CSO provisions of the Act, “there is no legal duty or obligation which requires Washtenaw to ensure First Security's compliance with the CSO Provisions of the WVCCPA [the Act].” We agree. Because there is no basis for imposing liability on Washtenaw under this theory, we affirm the trial court's grant of summary judgment on this issue.

FN35. In the summary judgment ruling at issue, the trial court expressly found that the Herrods signed various disclosure documents in which “First Security disclosed all aspects of the proposed loan transactions, including First Security's role as a broker, its services, and its compensation.” As indicated previously, the Herrods appear to complain about the fact that they were allegedly not provided with copies upon signing some of these documents. Because some of the documents were mailed to the Herrods, see supra note 9, they obviously had possession of several of the documents they signed.

[7] On this issue, the trial court granted summary judgment to Washtenaw based upon its conclusion that the “Herrods have produced no eviden[ce] to support any allegation that Washtenaw induced any fraudulent act or acts by one or more of the other defendants in this civil action.” The trial court further found that “[t]here could not have been any fraudulent act committed by Washtenaw upon which the Herrods relied in entering into the loan which is at issue in this civil action because the Herrods did not have any contact with Washtenaw until after the loan closing.”

While the Herrods assert abundant evidence of fraud with regard to this case, all of the factual assertions they refer to involve the actions of Mr. Young and First Securities. The alleged fraudulent representations all pertain to Mr. Young's statement that he would get them the best rate he could and that he cut his fees to do the loan at the time of the signing. The Herrods maintain that they would not have signed the loan if they had known they were not getting the best rate possible. None of these allegations of fraud in the inducement involve Washtenaw. Consequently, we find no error with regard to the trial court's dismissal of the Herrods' claim predicated on fraud as against Washtenaw.

Through their complaint Appellants sought to have the use of a yield spread premium declared illegal as an unfair and deceptive act or practice under the Act. Finding no provision in the Act addressing the use of such yield spread premiums, the trial court determined that such a claim would have to be asserted under federal law under the Real Estate Settlement Procedures Act (“RESPA”). See 12 U.S.C. § 2607 (2000). Then the court ruled that to the extent the Herrods were asserting such a claim, it was time-barred by the one-year statute of limitations that applies to claims brought under RESPA. The trial court similarly found that Appellants' assertion of a claim for allegedly not receiving a good faith estimate of settlement costs was a claim under federal law and one for which there is no private right of action. See 12 U.S.C. § 2604(c) (2000); Collins v. FMHA-USDA, 105 F.3d 1366 (11th Cir.1997).

[8] In defense of their claim, Appellants argue that they did not pursue federal claims but sought to have such procedures declared illegal under our state consumer credit and protection act. The prohibited conduct that is set forth in the CSO provisions of the Act clearly does not extend to or prohibit the use of yield spread premiums as it is currently written. See W.Va.Code § 46A-6C-3. And as the trial court found, even if First Securities was required to comply with the CSO provisions of the Act that identify illegal charges, “there is no legal duty or obligation which requires Washtenaw to ensure First Security's compliance with the CSO Provisions of the WVCCPA [the Act].” Finding no language in the Act which makes the use of yield spread premiums illegal or which would impose liability for a broker's violation of the Act on a lender, we must agree with the trial court that summary judgment is warranted on this claim for unfair and deceptive practices.

[9] The Herrods contend that Washtenaw had an agreement with First Security with regard to obtaining loans like the one which the Herrods signed that involved the use of the yield spread premium as a so-called kickback to reward the broker for *621

obtaining the loan. The trial court granted summary judgment to Washtenaw on this count, finding that there was no evidence that it was “involved in any joint venture, conspiracy and/or agency with any of the other defendants in this civil action.” Appellants argue that “the question of whether or not a joint venture exists is to be answered by the jury” and further that “ ‘[a] plaintiff has a right to a jury trial upon the factual issues to determine whether a joint venture existed.’ ” Bowers v. Wurzburg, 207 W.Va. 28, 37, 528 S.E.2d 475, 484 (1999) (quoting Lasry v. Lederman, 147 Cal.App.2d 480, 305 P.2d 663 (1957)).

While we agree that the evidence in the record on this issue is inferential at best, the Appellants' expert does set forth various theories in his report as to how the loans were approved and the involvement of other parties. The Herrods allege that there was an arrangement between Washtenaw and First Security with regard to the exchange of loan information and terms that was instrumental in the securement of the loan at issue.^FN36 Through these allegations of joint venture, agency, and conspiracy, the Herrods seek to impose liability on Washtenaw for any wrongdoing that they are able to prove against First Security.

FN36. Appellants contend that First Security would enter information into their computer regarding the prospective borrowers that would simultaneously be transmitted to Washtenaw and that the software being utilized would in turn provide disclosures reflecting the terms of the loan that Washtenaw would be willing to originate. The Herrods maintain that Wastenaw provided First Security with lender rate sheets and underwriting standards so that it could immediately discern and convey the loan terms to borrowers. Appellants suggest that this pattern of operation, along with the use of a “kickback” in the form of the yield spread premium, evidences a close relationship between First Security and Washtenaw.

In the report prepared by Appellants' expert witness that is part of the record, Mr. Byers opines that “a close inspection of the underwriting documents in the Washtenaw document file indicate that First Security worked hand-in-glove with them on the processing and approval of the Herrod loan from very early in the application process.” He explains further:

Washtenaw's own internal documents show a submission date to Washtenaw by First Security of April 20, 2000, yet the Desktop Underwriter system notes on April 19, 2000 that Washtenaw submitted the loan package for approval by Fannie Mae. In my opinion, First Security worked with their own version of Desktop Underwriter, or one supplied by Washtenaw, and pulled the Herrod credit reports through this system. At some point, however, either First Security processed the Herrod loan application through Desktop Underwriter in Washtenaw's name and using their lender identification in Fannie Mae's system, or Washtenaw was involved in the processing of the Herrod loan much earlier than their internal underwriting documents indicate. Given Earl Young's deposition testimony that 90% of First Security's Fannie Mae loans were brokered to Washtenaw, it is highly likely they processed the loan in Washtenaw's name.

He continues:

The implications of this processing for the Herrods gets back to the April 6, 2000 Good Faith Estimate mailed by Earl Young of First Security, and the very specific yield spread premium noted on this form. I mentioned earlier that Mr. Young would need a lender rate sheet to calculate such a specific yield spread, and the Desktop Underwriter processing by First Security through Washtenaw would be a logical extension of an April 6, 2000 yield spread pricing based on rate sheets provided to First Security by Washtenaw. While this may be a good business arrangement to close deals and maximize profit for the broker and lender, for the Herrods it meant the pricing fix was in long before they ever had any idea they were approved for a loan.

While this report of Appellants' expert appears to be the sole evidence of an arrangement between First Security and Washtenaw with regard to loan approval, we conclude that it should be up to a jury to determine whether there is sufficient evidence of a joint venture, agency, or conspiracy between these parties.

**384

Based on the foregoing, the decision of the Circuit Court of Kanawha County as to the granting of summary judgment to Washtenaw is affirmed as to the counts pertaining to credit services organization, fraud, and unfair or deceptive practices or acts, but reversed as to the counts pertaining to unconscionability and joint venture or conspiracy.

Affirmed, in part; Reversed, in part.

Justice BENJAMIN, deeming himself disqualified, did not participate in the decision of this case.

Judge JOHN S. HRKO, sitting by temporary assi

gnment.

Justice DAVIS, joined by Justice MAYNARD, concurs, in part, and dissent, in part, and files opinion.

Justice STARCHER concurs and files a separate opinion.

DAVIS, J., concurring in part and dissenting in part:

In this case, the majority concluded that the circuit court was correct in granting summary judgment to Washtenaw as to the Herrod's claims alleging a failure to comply with the Credit Services Organizations provision of the West Virginia Consumer Credit and Protection Act, fraud, and unfair or deceptive practices under the West Virginia Consumer Credit and Protection Act. I concur fully with the majority opinion's resolution of these matters. I disagree, however, with the majority's reversal of summary judgment as to the Herrod's claims of unconscionability and joint venture, agency or conspiracy.

1. Unconscionability. The majority's analysis of the issue of unconscionability does not apply to the facts of this case. In it's analysis of this issue, the majority opinion holds that “[w]here unconscionability is asserted under West Virginia Code § 46A-2-121 (1996) (Repl. Vol. 1999), the existence of questions of fact regarding whether the bargaining power was grossly unequal and thereby rendered the transactions between the plaintiffs and defendants unconscionable precludes the resolution of such claims through summary judgment.” Syl. pt. 4, in part (emphasis added). The majority goes on to discuss the inequality between the bargaining positions of the Herrod's as compared to First Security. While there may indeed have been such a disparity, this analysis is irrelevant to the instant appeal as there were no issues pertaining to First Security presented to this Court. The only defendant remaining in this case is Washtenaw.^FN1 There is simply no evidence in this case that Washtenaw engaged in any bargaining with the Herrods. Rather, as the majority opinion plainly acknowledges, the bargaining occurred between the Herrods and First Security. Although Washtenaw was the lender in this case, it simply had no direct contact with the Herrods. Because there was absolutely no bargaining between the Herrods and Washtenaw, the Herrod's claim of unconscionability against Washtenaw simply cannot stand. For this reason, I strongly believe the circuit court was correct in granting summary judgment to Washtenaw on this claim.

FN1. See Maj. op. at 357 n. 1, 625 S.E.2d at 357 n. 1 (“Washtenaw is the only remaining defendant of the various individuals and businesses that were sued by the Herrods after settlement and dismissals as a result of previous summary judgment rulings.”).

2. Joint Venture, Agency or Conspiracy. The only evidence to support the Herrod's claims of a joint venture, agency or conspiracy was the opinion of the Herrod's expert witness, which was entirely speculative. Indeed, the majority itself concedes that “the evidence in the record on this issue is inferential at best ....” Maj. op. at 338, 625 S.E.2d at 338. In finding that the circuit court erred in granting summary judgement on this issue, the majority ignores the fact that this Court has long recognized the requirement for a minimum level of evidence to overcome a motion for summary judgment. With respect to the burden placed on the non-moving party in order to overcome a proper motion for summary judgment, we have held that

If the moving party makes a properly supported motion for summary judgment and can show by affirmative evidence that *623

there is no genuine issue of a material fact, the burden of production shifts to the nonmoving party who must either (1) rehabilitate the evidence attacked by the moving party, (2) produce additional evidence showing the existence of a genuine issue for trial, or (3) submit an affidavit explaining why further discovery is necessary as provided in Rule 56(f) of the West Virginia Rules of Civil Procedure.

Syl. pt. 3, Williams v. Precision Coil, Inc., 194 W.Va. 52, 459 S.E.2d 329 (1995). Moreover, this Court has repeatedly observed that “the party opposing summary judgment must satisfy the burden of proof by offering more than a mere ‘scintilla of evidence,’ and must produce evidence sufficient for a reasonable jury to find in a nonmoving party's favor.” Painter v. Peavy, 192 W.Va. 189, 192-3, 451 S.E.2d 755 758-59 (1994) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202, 214 (1986)). Accord Toth v. Board of Parks and Recreation Comm'rs, 215 W.Va. 51, 56, 593 S.E.2d 576, 581 (2003); Bowers v. Wurzburg, 207 W.Va. 28, 41, 528 S.E.2d 475, 488 (1999) (Davis, J., dissenting); Gardner v. CSX Transp., Inc., 201 W.Va. 490, 497-98, 498 S.E.2d 473, 480-81 (1997); Jividen v. Law, 194 W.Va. 705, 713, 461 S.E.2d 451, 459 (1995). In this case, the Herrods failed to meet their burden of providing more than a mere scintilla of evidence and, therefore, it is my view that the circuit court was correct in granting summary judgment to Washtenaw on this claim.

For the foregoing reasons, I concur in part, and respectfully dissent in part, from the majority opinion. I am authorized to state that Justice MAYNARD joins me in this separate opinion.

STARCHER, J., concurring:

In the instant case, the majority has properly reversed the circuit court's grant of summary judgment to the defendant lender, and I concur in that judgment. Given the significance of the issues involved in the instant case to many West Virginia homeowners, I write separately to further address those issues.

The instant case involves a practice that is defined by the federal government as “predatory lending.” See HUD-Treasury National Predatory Lending Task Force, Joint Report: “Curbing Predatory Home Mortgage Lending” (2000). According to this report, predatory lending involves providing a borrower a loan with limited or no benefit, often characterized by high fees, that erodes the borrower's equity through (1) deception or fraud, (2) manipulating the borrower through aggressive sale tactics, or (3) taking unfair advantage of a borrower's lack of understanding of loan terms.

As Justice Maynard explained in Toppings v. Meritech Mtg. Servs., Inc., 212 W.Va. 73, 74, 569 S.E.2d 149, 150 (2002) (Maynard, J. concurring):

Subprime lenders loan to those borrowers with past credit problems or low income at a higher cost than conventional mortgage loans.... The transformation from subprime lending to predatory lending occurs when lenders employ unethical and/or illegal tactics to secure the loans or offer subprime loans to those who qualify for prime loans.

The instant predatory lending case involves a broker, an appraiser, a lender, and at least two assignees. Washtenaw Mortgage Corp. (“Washtenaw”) was the original lender in the transaction. The note and the deed of trust both bear Washtenaw's name. Washtenaw, which provided the money for the transaction, set the guidelines for the loan, set the requirements for funding the loan, and otherwise directed the activities of the broker. Washtenaw controlled the loan origination in order to protect its investment of upwards of $100,000.00. The evidence of this control is abundant in the record.

The loan officer for the broker, First Security Mortgage Corporation (“First Security”), testified that Washtenaw gave First Security rate sheets and underwriting criteria to make loans on its behalf. Plaintiff's expert also noted that Washtenaw had provided First Security software to facilitate the origination of loans. First Security was making representations to the Herrods about the loan that they would get with Washtenaw.

**386

Conversely, Washtenaw had no employees in West Virginia . Therefore it relied solely on the broker to communicate the terms of the loan to borrowers here. The record demonstrates that this relationship between First Security, Washtenaw, and the funder of the loan, Federal National Mortgage Association (“Fannie Mae”), was not sporadic. Ninety percent of Fannie Mae loans brokered by First Security were originated through Washtenaw.

After Washtenaw originated the loan pursuant to an agreement with Fannie Mae, it assigned the note and deed of trust to Fannie Mae. The record demonstrates that Washtenaw made the loan with the intention of assigning it to Fannie Mae. The loan officer for First Security testified that he recognized the loan was a “Fannie Mae loan” even before it had ever been assigned to Fannie Mae. This scenario, wherein loans are originated by brokers at the direction of another lender and then sold shortly afterward, is a common scenario-known as “securitization” in the home loan market.

Securitization ostensibly provides a source of capital so that more home loans are available to borrowers. However, the series of corporate and banking transactions that make up securitization cannot be permitted to avoid liability by those who are actually providing the funding-and often controlling the transaction. See Kurt Eggert, Held up in Due Course: Predatory Lending, Securitization, and the Holder in Due Course Doctrine, 35 Creighton L. Rev. 503 (2002).

With respect to a transaction which is or gives rise to a consumer credit sale, consumer lease or consumer loan, if the court as a matter of law finds:

(a) The agreement or transaction to have been unconscionable at the time it was made, or to have been induced by unconscionable conduct, the court may refuse to enforce the agreement, or

(b) Any term or part of the agreement or transaction to have been unconscionable at the time it was made, the court may refuse to enforce the agreement, or may enforce the remainder of the agreement without the unconscionable term or part, or may so limit the application of any unconscionable term or part as to avoid any unconscionable result.

W. Va.Code, 46A-2-121(1).

In order to obtain equitable relief under this statute, it is not necessary that the Herrods establish that in addition to unconscionable terms or inducement, Washtenaw itself must have engaged in affirmative acts to unconscionably induce the loan. Though the affirmative acts of a participant are relevant to the measure of additional damages recoverable from a particular party, W. Va.Code, 46A-5-101(1), the identity of the party or parties who entered into an unconscionable agreement is not a determining fact for entitlement to equitable relief.

Additionally, it is apparent from the record, that with respect to the Herrods' unconscionability claim, Washtenaw is not without blame. Among other things, the Herrods claim the fees in the loan were unconscionable. Washtenaw was a signatory to the contract and clearly was aware that the fees (1) were on their face excessive; (2) rendered the loan a high cost loan under federal law; and (3) violated its agreement not to originate loans for assignment to Fannie Mae that contained more than 5% in fees.

As the majority correctly concludes, there was substantial evidence already in the record, and the Herrods were entitled to an opportunity to present that evidence in support of their unconscionability claim. Indeed, in contrast to virtually all other types of claims, the statute mandates an opportunity to fully present evidence. See W. Va.Code, 46A-2-121(2).

The circuit court found that summary judgment was appropriate in favor of Washtenaw*625

on the illegal mortgage solicitation claim under the Credit Services Organization Act, on the basis that the broker did not collect a fee prior to the extension of credit. The majority concludes, correctly, that there is nothing in section 46A-6C-1 et seq. that requires lenders to comply with the CSO provisions of the Act.

However, the trial court went further, and suggested that not even First Security was required to comply with the CSO provisions. This Court's holding simply states that lenders are not bound by the CSO provisions of the West Virginia Consumer Credit and Protection Act. Accord, Brown v. Mortgagestar, Inc., 194 F.Supp.2d 473, 476 (S.D.W.Va.2002) (lenders are exempt).

This Court's holding should not be misinterpreted to suggest that brokers, who have heretofore been bound by the CSO provisions, are not covered by the Act. See Arnold v. United Companies Lending Corp., 204 W.Va. 229, 238, 511 S.E.2d 854, 863 (1998). There is nothing in the language of the statute that exempts brokers. Section 31-17-8(k) simply states that brokers cannot accept a fee until they have complied with the CSO provisions. It does not say that only when fees are paid prior to closing are brokers subject to the Act.

Furthermore, it is axiomatic that to be bound for payment of broker fees for services rendered, borrowers must have signed and received a written contract that provides the nature of the services to be provided and the cost of the services. See generally W. Va.Code, 46-2-201. In the instant case, the broker obtained over $10,000.00 in fees. Borrowers certainly have a right to a written contract when deciding whether to purchase such services; and if they do, to receive a copy of the written agreement for services costing them over $10,000.00.

In discussing the question of fraud and misrepresentation, the dissenting and the circuit court focused on an asserted lack of direct evidence of any direct misrepresentations by Washtenaw. This case, however, concerns whether Washtenaw can use brokers who do engage in fraud, suppressions, and misrepresentations to induce borrowers into predatory loans-and then enforce the predatory loans against the borrowers.

There appears to be some confusion in the dissent and the circuit court's opinions between the concepts of fraudulent misrepresentation as a defense to contract, and the concept of fraud as a tort. The Restatement (Second) of Contracts notes the difference between fraud as a contractual defense and fraud as a tort:

A misrepresentation is an assertion that is not in accord with the facts. Concealment, and in some cases non-disclosure of a fact are equivalent to such an assertion. A misrepresentation may have three distinct effects under the rules stated in this Chapter. First, in rare cases, it may prevent the formation of any contract at all. Second, it may make a contract voidable. Third, it may be the grounds for a decree reforming the contract. In the case of non-disclosure by a fiduciary, making a contract with his beneficiary, these rules are supplemented by the rule stated in § 173.

A misrepresentation may also be the basis for an affirmative claim for liability for misrepresentation under the law of torts. Such liability for misrepresentation is dealt with in the Restatement, Second, Torts. See Restatement, Torts chs. 22, 23. The rules stated there conform generally to those stated here. However, because tort law imposes liability in damages for misrepresentation, while contract law does not, the requirements imposed by contract law are in some instances less stringent. Notable, under tort law a misrepresentation does not give rise to liability for fraudulent misrepresentation unless it is both fraudulent and material, while under contract law a misrepresentation may make a contract voidable if it is either fraudulent or material.

Restatement (Second) Contracts ch. 7, Introductory Note (1981) (citations omitted) (emphasis added).

The question of whether a party was fraudulently induced into a contract may go to the formation of the contract. A party that is misled as to the essential terms of a contract does not technically agree to the *626

contract, as no assent to its terms has been formulated due to the misrepresentation. In this situation, it is irrelevant whether the misrepresentation was made by the other party to the contract or a third person. See Restatement (Second) Contracts § 163 (1981) (“It is immaterial under the rule stated in this Section whether the misrepresentation is made by a party to the transaction or by a third person.”).

If a misrepresentation does not prevent a party from assenting to the contract, the misrepresentation, whether it be fraudulent or material, may render the contract merely voidable. See Restatement (Second) Contracts 164 (1981). A misrepresentation by a third party may render the contract voidable. See id. 164(2).

Article 3 of the Uniform Commercial Code governs the claims and defenses a party may make arising out of negotiable instruments. The UCC provides that the right to enforce an obligation arising out of a negotiable instrument is subject to “[a] claim in recoupment of the obligor against the original payee of the instrument if the claim arose from the transaction that gave rise to the instrument; but the claim of the obligor may be asserted against a transferee of the instrument only to reduce the amount owing on the instrument at the time the action is brought.” W.Va.Code, 46-3-305 (emphasis added). Under this provision, it is clear that any claim an obligor may have arising out of the transaction may be asserted defensively against the original payee in the transaction in an action for recoupment.

To the extent that borrowers are defrauded, as a matter of contract law, they have defenses against the holder of the obligation in an action for recoupment. ^FN1 There is no basis for Washtenaw to wipe out the Herrods' contractual defense of fraud, regardless of whether the fraud was directly induced by a third person.

FN1. Since a lender in this state may foreclose on property without a judicial proceeding, see W.Va.Code 38-8-1 et seq., a borrower who wants to avoid foreclosure and seek other relief must initiate a new civil action.

A securitization model-a system wherein parties that provide the money for loans and drive the entire origination process from afar and behind the scenes-does nothing to abolish the basic right of a borrower to assert a defense to the enforcement of a fraudulent loan, regardless of whether it was induced by another party involved in the origination of the loan transaction, be it a broker, appraiser, closing agent, or another.

Thus, the Herrods may assert these equitable claims in recoupment. Moreover to the extent the Herrods can prove that Washtenaw was engaged in a joint venture, agency, or conspiracy with the broker and/or appraiser, they may pursue their actual and punitive damages under tort theories. See Muzelak v. King Chevrolet, 179 W.Va. 340, 345, 368 S.E.2d 710, 715 (1988); Restatement (Second) Contracts, ch. 7, Introductory Note (1981).

In this case, the Herrods presented substantial evidence that they were fraudulently induced into the loan. The evidence, taken in a light most favorable to the Herrods, tended to show the broker and the appraiser had an arrangement-arguably a conspiracy-to provide inflated appraisals to justify predatory loans. The evidence of this scheme was sufficient enough for the circuit court to deny summary judgment to the appraiser.^FN2 While the Herrods have produced no evidence to hold Washtenaw directly liable for fraud as a tort, they nonetheless have the ability to maintain an action for recoupment for fraudulent misrepresentation in contract, and for damages in joint venture, conspiracy, or agency, as explained by the Opinion of the Court.

FN2. The broker, First Security, abandoned its defense during the litigation and apparently was facing a default judgment when summary judgment was entered for Washtenaw. The Appellants claim that several of the issues for which Washtenaw received summary judgment were actually claims exclusive to the broker. This Court apparently did not consider the legitimacy of any claims that were asserted only against the broker, who was not a party to this appeal.

The Herrods also allege the broker engaged in unfair and deceptive acts or practices in the origination of the loan in violation of W.Va.Code, 46A-6-101 et seq. These claims were made against the broker, not the *627

lender. To be sure, the UDAP provisions do not apply to lending activities, but only apply to the sale of services-in this case, broker services. See W.Va.Code, 46A-6-102(d). I agree with the majority that the Herrods asserted no claims for unfair and deceptive acts or practices against Washtenaw. This Court has not passed on the Herrods' UDAP claims, to the extent they may be asserted against the broker in connection with the sale of broker services.

The Opinion of the Court also affirms the right of the Herrods to pursue liability against Washtenaw for any wrongdoing that they are able to prove against the broker.

Though direct claims for fraud, failure to provide a proper broker agreement, and UDAP were properly dismissed, actual and punitive damages may nevertheless be pursued against the lender. Participation in a joint venture with a broker or other party in a predatory lending context gives rise to liability for such claims under a claim of joint venture. See Short v. Wells Fargo Bank Minnesota, N.A., 401 F.Supp.2d 549, 564-65 (S.D.W.Va.2005); see also generally Armor v. Lantz, 207 W.Va. 672, 677-78, 535 S.E.2d 737, 742-43 (2000); Sipple v. Starr, 205 W.Va. 717, 725, 520 S.E.2d 884, 892 (1999); Price v. Halstead, 177 W.Va. 592, 594, 355 S.E.2d 380, 384 (1987).

Similarly, if one party is directing or exercising control over loan origination in the circumstance of securitized lending, it is a factual question as to whether there is a principal/agency relationship sufficient to impose such liability on all the participants. See Short v. Wells Fargo Bank Minnesota, N.A., supra, 401 F.Supp.2d at 564-65; England v. MG Investments, Inc., 93 F.Supp.2d 718, 723 (S.D.W.Va.2000); Arnold, 204 W.Va. at 240, 511 S.E.2d at 865.

The dissent contends that the Herrods presented no more than a scintilla of evidence in support of their claims for joint venture, agency, and conspiracy. While the Opinion of the Court states that the evidence presented by the Herrods was inferential, this by no means suggests that the evidence was not sufficient for a jury to find there was a relationship between Washtenaw and the broker. This Court has previously held “ ‘[p]roof of an express contract of agency is not essential to the establishment of the relation. It may be inferred from facts and circumstances, including conduct.’ ” Arnold, 204 W.Va. at 239, 511 S.E.2d at 864 (quoting General Elec. Credit Corp. v. Fields, 148 W.Va. 176, 181, 133 S.E.2d 780, 783 (1963)) (emphasis added).

Indeed, it would defy common sense to suggest that there was no relationship between the broker and the lender in this case. Washtenaw had no employees in this State. Its only ability to communicate with the Herrods was through the broker. The loan broker testified and the Herrods' expert explained that Washtenaw provided First Security with rate sheets, underwriting criteria, and software to facilitate the broker's origination of loans for Washtenaw. Washtenaw directed the broker in all aspects of the loan. It would be surprising if Washtenaw did not control all details of the origination of the loan considering Washtenaw's considerable investment.

And finally, there was evidently an agreement to share in the profits in the loan. In addition to significant up-front fees that presumably would not be paid if the loan were not closed, Washtenaw paid First Security a yield spread premium, which was tied directly to the rate the broker persuaded the Herrods to take. While all this evidence may be termed as “inferential,” it certainly was more than a “scintilla.” On the other hand, the only evidence presented in contradiction of the Herrods' evidence was that First Security had a broker relationship with other lenders. At the very least there exists a fact issue for the jury on the Herrods' joint venture, agency, and conspiracy claims.

Accordingly, I concur.

Chester BROWN and Melanie Brown, Plaintiffs,
v.
MORTGAGESTAR, INC., Alliance Funding, Superior Bank FSB, and Fairbanks Capital Corp., Defendants.

Borrower of home equity loan brought action against lender, broker, and broker's agent alleging violations of the Truth in Lending Act (TILA), fraudulent misrepresentation, and other state law claims. Defendants moved to dismiss. The District Court, Haden, Chief Judge, held that: (1) broker was exempt from disclosure requirements of West Virginia Consumer Credit and Protection Act pertaining to credit services organizations, under mortgage lender exemption; (2) allegations of discrepancies in loan documents stated TILA claim against purported assignee of loan; and (3) allegations stated claim for rescission of loan.
Motions granted in part, and denied in part.

[1] KeyCite Notes

92B Consumer Credit

92BI In General

92Bk16 k. Disclosure Requirements; Statements and Receipts. Most Cited Cases

Broker which acted on behalf of lender in loan transaction was exempt from disclosure requirements of West Virginia Consumer Credit and Protection Act pertaining to credit services organizations, under mortgage lender exemption, where broker was licensed as mortgage lender by secretary of Housing and Urban Development (HUD). W.Va.Code, 46A-6C-2(a, b).

[2] KeyCite Notes

[3] KeyCite Notes

92B Consumer Credit

92BII Federal Regulation

92BII(A) In General

92Bk36 k. Rescission Rights; Liens on Residences. Most Cited Cases

Allegations that borrowers gave notice of cancellation of transactions, that notice was received by lender, broker, and purported assignee of loan, and that they did not take appropriate action in response to timely cancellation, in violation of TILA and its regulations, stated claim for rescission of loan. Truth in Lending Act, § 125, 15 U.S.C.A. § 1635; 12 C.F.R. § 226.23.

Daniel F. Hedges, Esq., Charleston , for Plaintiffs.
Kenneth E. Webb, Esq., Bowles Rice McDavid Graff & Love, Charleston, Donald A. Rea, Esq., Alison E. Goldenberg, Esq., Gordon, Feinblatt, Rothman, Hoffberger & Hollander, Baltimore, MD, for Defendant MortgageStar.
William W. Booker, Esq., John R. McGhee, Jr., Esq., Kay, Casto & Chaney, Charleston, David M. Souders, Esq., Cynthia G. Swann, Esq., Weiner Brodsky Sidman Kider, Washington, DC, for Defendant Fairbanks.

(Cite as: 194 F.Supp.2d 473, *474)

HADEN, Chief Judge.
Pending are the motions of Defendant MortgageStar, Inc. (MortgageStar) for partial dismissal or, alternatively, for partial summary judgment and Fairbanks Capital Corp. (Fairbanks) to dismiss. For reasons discussed below, MortgageStar's motions are GRANTED in part and DENIED in part; Fairbanks ' motion is DENIED.

The facts stated in the Complaint are presumed to be true for purposes of this motion. Plaintiffs, husband and wife, contacted an agent of MortgageStar in July, 2000 ^FN1 after they viewed its television advertisement offering home equity loans. MortgageStar's agent met with the Browns at Hardee's in Chapmanville, Logan County , West Virginia , and offered a loan at 8.9 percent annual percentage rate (APR). The Browns submitted an application for the loan to the agent, but no copy was provided to them, nor were they told MortgageStar and its agent were brokering the loan for another lender.

The Browns met the agent for closing on December 8, 2000 at the same location. The lender, Alliance Funding, had prepared and forwarded to the Plaintiffs all the documents necessary to close the loan. These documents were backdated to December 7, 2000. At the December 8 meeting, the Browns disputed the loan APR because it was higher than the one initially offered. The agent encouraged them to sign the papers anyway, saying, “Go ahead and sign and we'll adjust the rate in six months.” Plaintiffs accepted the loan, but called the agent the next day to cancel. After the agent reassured them the APR would be reduced in six months, the Browns decided not to cancel the loan. Defendants did not pay off the Browns' outstanding loans as represented in the closing documents, but simply kept the money. On November 27, 2001 the Browns gave cancellation notice, but Defendants did not respond.

MortgageStar moved to dismiss Counts I, II, III, IV, VIII, and IX of the Amended Complaint for failure to state a claim under Rule 12(b)(6) or, alternatively, for summary judgment.^FN2 Fairbanks Capital also moved to dismiss pursuant to Rule 12(b)(6).

FN2. The Amended Complaint contains no Count VII and two Counts IX, the first of which alleges Truth in Lending Act (TILA) violations (IX-A) and the second of which alleges fraudulent misrepresentation (IX-B). The Amended Complaint also references “Defendant Lockhart and First Security,” who are not named as defendants or otherwise identified. (Compl.¶ 47.)

Count I names only Defendant Alliance Funding, which prepared the loan documents, and alleges unauthorized practice of law. Because MortgageStar is not named nor in any way implicated in this count, its motion to dismiss is DENIED as moot with regard to Count I.

Plaintiffs also assert Counts VIII and IX-A, pertaining to TILA, do not refer to MortgageStar. Accordingly, MortgageStar's motions to dismiss these counts against it are DENIED as moot.

Count IX-B alleges fraudulent misrepresentation that the interest rate would be reduced after six months. As the facts are recounted, this count appears to implicate MortgageStar as the entity that brokered the loan and allegedly made the misrepresentations. Also, MortgageStar makes no argument the count for fraudulent misrepresentation should be dismissed. Accordingly, any motion to dismiss Count IX-B as against MortgageStar is DENIED.

(Cite as: 194 F.Supp.2d 473, *475)

Our Court of Appeals has often stated the settled standard governing the disposition of a motion to dismiss pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure :

In general, a motion to dismiss for failure to state a claim should not be granted unless it appears certain that the plaintiff can prove no set of facts which would support its claim and would entitle it to relief. In considering a motion to dismiss, the court should accept as true all well-pleaded allegations and should view the complaint in a light most favorable to the plaintiff.

Mylan Laboratories, Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir.1993) (citations omitted); see also Brooks v. City of Winston-Salem, 85 F.3d 178, 181 (4th Cir.1996); Gardner v. E.I. Dupont De Nemours and Co., 939 F.Supp. 471, 475 (S.D.W.Va.1996). It is through this analytical prism the Court evaluates Defendants' motions.

Rule 12(b) also provides:

If, on the motion asserting the defense numbered (6) to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.

Fed.R.Civ.P. 12(b). Under Rule 56(c), summary judgment shall be rendered if the “pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c).

[1] Count II alleges violations of Article 6C of the West Virginia Consumer Credit and Protection Act, pertaining to Credit Services Organizations, 46A-6C-1, et seq. A credit services organization includes,

a person ^FN3 who, with respect to the extension of credit by others and in return for the payment of money or other valuable consideration, provides, or represents that the person can or will provide, any of the following services:

FN3. “Person” includes an organization, W. Va.Code § 46A-1-102(31), and “organization” includes a corporation. Id. at § 46A-1-102(29).

...

(2) Obtaining an extension of credit for a buyer; or

(3) Providing advice or assistance to a buyer with regard to subdivision ... (2) of this subsection.

W. Va.Code § 46A-6C-2(a). The parties agree that under this definition MortgageStar was acting as a credit services organization. The statute continues:

(b) The following are exempt from this article:

(1) A person authorized to make loans or extension of credit under the law of this state or the United States who is subject to regulation and supervision by this state or the United States, or a lender approved by the United States secretary of housing and urban development for participation in a mortgage insurance program under the National *476

Housing Act (12 U.S.C. Section 1701 et seq.) [.]

W. Va.Code § 46A-6C-2(b).

MortgageStar presents the affidavit of its President, Richard A. Weiner, which avers MortgageStar was licensed as a mortgage lender by the State, effective August 7, 2000, and approved by the U.S. Secretary of Housing and Urban Development (HUD) to act as a non-supervised lender beginning September 1, 1999. Thus, MortgageStar argues, it is exempt from the provisions of Article 6C.

Plaintiffs respond this interpretation would wipe out application of the broker disclosure law. According to Plaintiffs, if the Article 6C exemption were interpreted to mean that any broker engaging in brokering activities, which also happens to have a lending license in its own name, is exempt from law, the intent of the law would be undercut. Plaintiffs claim the intent of the exemption was that lenders, while lending their own money, are exempt. Plaintiffs provide no authority for this interpretation and, in fact, the plain language of the law does not support it.^FN4

FN4. Plaintiffs moved to file a surreply. That motion is GRANTED and the Court has considered the attached surreply. In that document, Plaintiffs argue the Division of Banking “requires brokers comply with Article 6C, Chapter 46A.” (Pls.' Surreply at 2.) Plaintiffs provide no authority for this proposition.

The only relevant statute the Court can locate requires mortgage brokers, as well as lenders and servicers, to register and comply with all requirements in Article 6C, Chapter 46A, only if they charge or receive money from a borrower “before completing performance of all services the licensee has agreed to perform for the borrower.” W. Va.Code § 31-17-8(k). Where, as in the instant case, the broker fee is paid at the loan closing, this statute appears inapplicable.

As quoted above, a credit services organization is a person who, “ with respect to the extension of credit by others and in return for payment of money or other valuable consideration, provides ... the following services.” W. Va.Code § 46A-6C-2(a)(emphasis added). By definition, organizations subject to Article 6C are acting “with regard to the extension of credit by others,” that is, not lending their own money. Nor does any other portion of the article alter this interpretation. Accordingly, because MortgageStar was a HUD-approved lender during the period in which these events are alleged to have occurred, MortgageStar is exempt from the requirements of Article 6C, pursuant to W. Va.Code § 46A-6C-2(b)(1).^FN5

FN5. Some of Plaintiffs' claims under the Credit Services Organization Act have commonlaw equivalents. For example, Plaintiffs' statutory claim concerning MortgageStar's alleged deceptive conduct with regard to the APR has a commonlaw equivalent in Plaintiffs' fraudulent misrepresentation count, Count IX-B. Similarly, Plaintiffs' fraud allegation, Count VI, subsumes the statutory claim that MortgageStar charged the buyer solely for referral to a retail seller of credit, where the credit was substantially the same as that available to the general public from other sources. See W. Va.Code § 46A-6C-3(2).

Nevertheless, the Court realizes that many other apparent protections provided by the Credit Services Organization article, such as broker disclosure requirements and separate contracts for provision of broker services including a prominent cancellation notice, are lost in situations such as those presented by the instant case. The undersigned, however, is duty bound to interpret the plain language of the statute.

Because the Court considered materials outside the pleadings, that is, the affidavit of MortgageStar's president, the motion is considered as one for summary judgment, and MortgageStar's motion for summary judgment on Count II is GRANTED.

With regard to Counts III and IV, MortgageStar moves to dismiss the class claims *477

brought on behalf of a purported class of all consumers who (a) signed a loan agreement in West Virginia with the Defendant Alliance Funding in the five years immediately preceding the filing of the action, (b) where the contracts were solicited by a mortgage broker without written disclosure of cost of services and services to be performed, and (c) the agreements included payment of a mortgage broker fee. The affidavit from MortgageStar's President avers MortgageStar brokered only the Browns' loan in West Virginia in 2000 and brokered no loans with Alliance in West Virginia from 1996 through 1999 nor in 2001.

Because no motion for class certification is pending at this time, the Court declines to consider the issue. MortgageStar's motions for dismissal on Counts III and IV are DENIED without prejudice and may be renewed at the appropriate time.

[2] Fairbanks moved to dismiss the Complaint against it pursuant to Rule 12(b)(6), claiming it is only a subsequent servicer of the loan and could have had no part in the alleged misconduct.^FN6 Plaintiffs counter that, according to the limited information provided, Fairbanks took assignment of the loan in October, 2001. Thus far in discovery, Fairbanks has refused to reveal who holds the loan, that is, who is the assignee, if it is not. Further, Fairbanks services the loan, has made all collection attempts against the Plaintiffs, and is the current functional holder of the loan.

FN6. Fairbanks moved to dismiss as well under Rule 9(b), which requires fraud be pled with particularity. Because Fairbanks is not named nor implicated in any of the fraud claims, this motion is DENIED as moot.

Assignees are liable for statutory damages for TILA violations only when the violations are proven to be apparent on the face of the documents assigned. See 15 U.S.C. § 1641(a). The Complaint lists several alleged discrepancies in principal amount and APR among the TIL disclosure statement, deed of trust, and note. These alleged discrepancies, apparent on the face of the documents, are sufficient to hold the assignee liable for TILA violations. Fairbanks' motion is DENIED without prejudice and may be reasserted once discovery reveals the holder of the loan and, if that holder is not Fairbanks, any relations, contractual or otherwise, between it and Fairbanks, which may be relevant to this action.

[3] Fairbanks also moves to dismiss Plaintiffs' claim for rescission under Count IX-A because it does not allege Plaintiffs gave written notice of cancellation, and “cryptically references more than one transaction.” ( Fairbanks ' Reply Mem. at 4.) Under notice pleading, a plaintiff must provide only “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a). Additionally, “Each averment of a pleading shall be simple, concise, and direct. No technical forms of pleading ... are required.” Fed.R.Civ.P. 8(e).

The Complaint alleges:

11. (b) The plaintiffs gave cancellation of the transactions on November 27, 2001. The notice directed all further communications to Plaintiff's counsel.

(c) This notice was received by the defendants.

(Compl.¶ 11(b), (c).) Count IX-A alleges “The Defendant took no appropriate action in response to the Plaintiffs' timely cancellation, in violation of 15 U.S.C. § 1635 and Regulation Z, 12 C.F.R. § 226.23.” These short and plain statements are sufficient to meet the requirements of Rules 8(a) and (e) and put the Defendants on notice as to the nature of the claim. As the party *478

demanding payment from Plaintiffs, whether as holder of the loan or agent of the holder, i.e., servicer, Fairbanks would be the appropriate party to respond to and act upon the tendered rescission notice. Accordingly, Fairbanks ' motion to dismiss Count IX-A against it is DENIED.

MortgageStar's motions to dismiss Counts I, VIII, IX-A, and IX-B are DENIED. MortgageStar's motions to dismiss Counts III and IV are DENIED without prejudice. MortgageStar's motion for summary judgment on Count II is GRANTED. Fairbanks ' motions to dismiss are DENIED without prejudice, except its motion to dismiss Count IX-A is DENIED. Plaintiffs' motion to file a surreply is GRANTED.

The Clerk is directed to send a copy of this Order to counsel of record and publish it on the Court's website at http://www.wvsd.uscourts.gov.

S.D.W.Va.,2002.
Brown v. Mortgagestar, Inc.
194 F.Supp.2d 473

Loan origination fee (First Security)	$	4,000
Underwriting fee (Washtenaw)	$	250
Broker fee (First Security)	$	2,600
Processing fee (First Security)	$	290
Service set up fee (Washtenaw)	$	100
Administrative fee (First Security)	$	75
Yield spread premium (Washtenaw)	$	3,052
Settlement/closing fee (Midwest Title)	$	125
Total	$	10,492