May 3, 1994
Honorable William T. Graham Commissioner of Banks State Banking Commission Dobbs Building 430 North Salisbury Street Raleigh, North Carolina
Re: Advisory Opinion – Consumer Finance Act; Effect of Federal Court Decisions on Attorney General’s Opinions
Dear Commissioner Graham:
This Office, pursuant to your requests, has furnished opinions dated 22 January 1991 and 15 January 1993 construing certain provisions of the Consumer Finance Act (Art. 15, G.S. Chap. 53). The 1991 opinion addressed two issues: (1) whether the Commissioner of Banks has the authority under G.S. § 53-172 to permit licensees under the Act to conduct other types of business on the same premises where they conduct their consumer finance activities ("other business" authority), and (2) whether licensees under the Act may benefit directly or indirectly from charges or commissions realized on the sale of non-credit insurance, services, or products as a part of the loan transaction under the Act, other than those charges specified by G.S. § 53
178. This Office answered the first issue in the affirmative and the second issue in the negative. In the 1993 opinion, this Office considered the issue of whether the Commissioner of Banks has the power under G.S. § 53-172 to issue an order of general applicability revoking other business authority of all licensees to whom he has previously granted such authority. This Office concluded that the Commissioner did not have such power but, rather, has the power to revoke the "other business" authority of individual licensees when he determines such authority to be contrary to the best interests of the borrowing public.
A decision of the United States District Court for the Western District of North Carolina, Herndon v. ITT Consumer Financial Corp., 789 F.Supp. 720 (W.D.N.C. 1992), subsequently affirmed in 16 F.3d 409 (4th Cir. 1994)(unpublished opinion), characterized as "incomprehensible" that part of the 1991 opinion which stated that, after having considered the provisions of G.S. § 53-178:
[I]t is our opinion that the statute prohibits licensees under the Consumer Finance Act from benefiting from any charges or insurance commissions realized from the sale of any services, products, or insurance made as a part of or in connection with a loan transaction under the Act other than those specified in the Act, whether benefit is realized either directly by the licensee, or indirectly by any affiliate or associate of the licensee, or, in the case of corporate licensees, by any subsidiary or parent of the licensee.
The Federal District Court, in dismissing the case with prejudice, concluded that charges and commissions collected by defendant licensees on sales made as a part of a loan transaction did not violate the Consumer Finance Act and were not a per se violation of North Carolina law for purposes of the Racketeer Influenced and Corrupt Organizations Act, G.S. § 75-1.1, or the Truth in Lending Act when the defendant licensees’ sales were made under "other business" authority duly granted, though subsequently withdrawn, by the Commissioner of Banks.
You have now asked that we issue an opinion whether the holding of the federal court "changes in any way the conclusion of the Attorney General’s Opinion of January 15, 1993 that ‘other business’ authority must be applied for and granted on a case-by-case basis before a licensee may collect fees for engaging in another business activity."
It is uncertain what effect, if any, the Herndon decision may have with regard to federal cases involving the North Carolina Consumer Finance Act brought in the courts of the Fourth Circuit, particularly when considered in light of the 1992 amendments to G.S. §§ 53-172 and 53-178. The holding of the case deals only with the issue of what charges and commissions the licensees in that case were entitled to receive on the sales that they made under "other business" authority. It is our view that the effect of Herndon, for purposes of federal litigation alone, will probably be limited to permitting licensees to receive fees and charges on all sales made prior to the 1992 amendment of G.S. § 53-178 under "other business" authority, whether or not the sales were made as a part of the loan transaction.
It is clear, however, that the federal court recognized that such sales could be made only if the licensees had been .granted "other business" authority by the Commissioner of Banks pursuant to
G.S. § 53-172. Herndon, page 723. It is our opinion, therefore, that the federal decision has no effect on the requirement that licensees who wish to engage in "other business" activities must first receive authorization so to do from the Commissioner pursuant to G.S. § 53-172; thus, the decision has no effect on our opinions or parts thereof dealing with the grant of "other business" authority by the Commissioner.
We hope that this fully answers your inquiry, but if you have other questions, please contact us.
Ann Reed Senior Deputy Attorney General
Henry T. Rosser
Special Deputy Attorney General