STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

STATE OF FLORIDA, DEPARTMENT ) OF BANKING AND FINANCE, DIVISION ) OF BANKING AND FINANCE, )

)

Petitioner, )

)

vs. ) Case No. 97-2375

)

TITLE LOAN, INC., d/b/a Cash Cow; ) JEFF SWANK, individually and as ) President of Title Loan, Inc., )

)

Respondents. )

)

RECOMMENDED ORDER

Pursuant to written notice, a formal hearing was held in the above-styled case on October 14 and 15, 1998, by Stephen F. Dean, assigned Administrative Law Judge of the Division of Administrative Hearings, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Robert Alan Fox, Esquire

Paul C. Stadler, Esquire Assistant General Counsels Department of Banking and Finance Suite 526, The Fletcher Building

101 East Gaines Street Tallahassee, Florida 32399

For Respondent: Richard M. Powers, Esquire

315 South Calhoun Street, Suite 308 Tallahassee, Florida 32301

STATEMENT OF THE ISSUE

The issue in this proceeding is whether Respondents committed the offenses set forth in the Administrative Complaint and, if so, what penalties should be imposed.

PRELIMINARY STATEMENT

Petitioner filed a nineteen-count Administrative Complaint alleging that Title Loan, Inc., d/b/a Cash Cow (hereinafter "Cash Cow") and Jeffery C. Swank (hereinafter "Swank"), collectively referred to as Respondents, had violated numerous provisions of Chapters 516 and 560, Florida Statutes (1995) ("Florida Statutes"). Counts I and III allege that Respondents knowingly failed to comply with the payment instrument sale prohibition contained in Section 560.303(2), Florida Statutes, by engaging in payment instrument sales.

Counts II and IV allege that Respondents knowingly failed to comply with the registration requirement of Section 560.204(1), Florida Statutes, by engaging in the activities of a payment instrument seller without first obtaining a part II registration.

Counts V, VII and VIII allege that Respondents engaged in fraud, misrepresentation, deceit, or gross negligence in its money transmitter transactions, in violation of Section 560.114(1)(b), Florida Statutes, by: 1) charging a non-sufficient funds charge in repayment and extension transactions; 2) stating in its customer agreements that Cash Cow is receiving a "check cashing fee" when in fact Cash Cow is not cashing checks; and 3)

by stating in the customer agreements that the customer's check is a "cashed check" when in fact Cash Cow is not cashing checks, respectively.

Count VI alleges that Cash Cow knowingly received or possessed itself of a non-sufficient funds charge which was not in payment of a just demand in violation of Section 560.111(1)(a), Florida Statutes.

Count IX alleges that Respondents engaged in false, deceptive or misleading advertising, in violation of Section 560.114(1)(d), Florida Statutes, by advertising that Cash Cow cashed checks when in fact Cash Cow did not cash checks.

Counts X and XI allege that Respondents made material misstatements of fact in a renewal application filed with the Department, in violation of Section 560.114(2)(a), Florida Statutes, by not stating that the company engaged in payment instrument sales and the activities of a consumer finance company.

Count XII alleges Swank's in-depth involvement in the alleged violations contained in Counts I through IX, and seeks that Swank be removed and barred as an officer or principal with Cash Cow or any other money transmitter.

Count XIII alleges that Respondents made consumer finance loans without a license, in violation of Section 516.02(1), Florida Statutes.

Count XIV alleges that Respondents made loans in excess of 18% interest, in violation of Section 516.02(2)(a), Florida Statutes.

Count XV alleges that Respondents made loans which are unenforceable under the provisions of Section 516.02(2)(a) and (c), Florida Statutes.

Count XVI alleges that Respondents charged a non-sufficient funds charge prior to the customer's check being returned by the financial institution, in violation of Section 516.031(3), Florida Statutes.

Count XVII alleges that Respondents charged a non-sufficient funds charge in repayment and extension transactions, in violation of Section 516.031(3), Florida Statutes.

Count XVIII alleges that Respondents willfully imposed illegal or excessive charges, in violation of Sections 516.02(2)(a), 516.031(3), and 516.07(1)(e)1, Florida Statutes.

Count XIX alleges that Respondents made loans that were not required to be repaid in monthly installments, in violation of Section 516.36, Florida Statutes.

The Respondents disputed the allegations contained in the Administrative Complaint and requested a formal hearing pursuant to Sections 120.569 and 120.57, Florida Statutes (1996 Supp.).

The case was duly referred to the Division of Administrative Hearings.

Prior to the final hearing, Respondents filed a Motion to Dismiss for Protective Order ("Motion"). Respondents' Motion alleged that, pursuant to Section 560.117, Florida Statutes, the Department was required to provide Cash Cow with notice and an opportunity to correct violations of the Money Transmitters' Code before the Department could file an Administrative Complaint against the company. Respondents rely on Section 560.117, Florida Statutes, which provides:

The notice requirement contained therein is applicable to fines sought pursuant to Section 560.117, Florida Statutes, which is the chapter's sole authority to fine.

Section 560.112, Florida Statutes, allows the Department to file an Administrative Complaint "whenever the Department has reason to believe that such person has engaged or is engaging in conduct described in Section 560.114."

However, the authority to fine pursuant to Section 560.117, Florida Statutes, requires notice and an opportunity to cease or correct the offending conduct and is unrelated to this case. The authority to fine pursuant to Section 516.23(2)(c) is broader and is not limited by a notice requirement.

At the hearings, the Department presented the testimony of eight witnesses and had forty-two exhibits (Petitioner's Exhibit Nos. 1, 2, 4-32, and 34-44) admitted into evidence. The Respondent presented the testimony of one witness and had three exhibits (Respondents' Exhibit Nos. 1-3) admitted into evidence.

The hearing was closed to the public pursuant to Section 560.129(2)(a), Florida Statutes.

A transcript of the hearing was filed with the Division of Administrative Hearings on November 2, 1998. The parties stipulated to extend the filing date of their Proposed Recommended Orders, and entry of this order.

FINDINGS OF FACT

General Findings of Fact

1. The Department of Banking and Finance is the agency responsible for the administration of Chapter 560, Florida Statutes, the Money Transmitters' Code, which in material part governs the registration and regulation of payment instrument sellers and check cashers in Florida. Section 560.102(1),Florida Statutes.

2. At all times material hereto, Cash Cow was registered with the Department as a check casher pursuant to part III of the Money Transmitters' Code ("Code").

3. At all times material hereto, Cash Cow was not registered as a payment instrument seller pursuant to part II of the Code.

4. At all times material hereto, Cash Cow was not licensed pursuant to the provisions of Chapter 516, Florida Statutes, the Florida Consumer Finance Act.

5. At all times material hereto, Jeffery C. Swank was President of Cash Cow and the individual who oversaw the daily operations of Cash Cow. Petitioner's Exhibit No. 30; Petitioner's Exhibit No. 34, pages 10-11, and 42.

   Description of Typical Transaction

   
   

6. Cash Cow received a check from a customer typically in the amount of $110.00.

7. In exchange for the customer's $110.00 check, Cash Cow tendered its check in the amount of $100.00, which the customer could cash anywhere but at Cash Cow.

8. The $10.00 difference between what the customer paid and the amount of the Cash Cow check is described in the customer agreement as a "check cashing fee." Petitioner's Exhibit

   Nos. 1, 2, and 4-8.

   
   

9. In addition to the $110.00 check, the customer also wrote a second personal check in the amount of $20.00. This

   $20.00 amount is described in the customer agreement as a "non- sufficient funds charge."

10. Cash Cow provided checks to a customer in $100.00 increments. Should the customer have wished to receive $200.00, the customer would have received two $100.00 checks from Cash Cow, and the customer would write two $110.00 checks and two

    $20.00 checks.

    
    

11. The customer agreement further provides, "that the customer could pick up the two checks within three days upon payment of $110.00, or redeem the cashed check no later than" a date specified in the agreement approximately two weeks from the date of the agreement. Petitioner's Exhibit Nos. 1, 2, and 4-8. The customer could present a cashier's check or money order to

    Cash Cow in the amount of $130.00 on or before the specified date and pick up the $110.00 and $20.00 checks; or Cash Cow might permit the customer to extend the date the check could be picked up for two weeks by paying an additional $30.00 in cash per

    $100.00 borrowed. Cash Cow assessed the "non-sufficient funds charge" if the customer extended the obligation or paid the obligation after three days without extending the obligation.

12. In some cases Cash Cow, having received an additional

    
    

    $30.00, retained the customer's original checks without giving the customer a new Cash Cow check or any other tangible object; or in other cases, Cash Cow returned the customer's original checks, obtained new checks from the customer totaling $160.00 and gave the customer a new Cash Cow $100.00 check. In still other cases, Cash Cow changed the date on the customer's checks it held and gave the customer a new Cash Cow check which the customer was required to endorse immediately back to Cash Cow.

    Sales of Payment Instrument

    
    

13. Respondents knew that payment instrument sellers were required to be registered pursuant to the Code.

14. Respondents knew Cash Cow was not registered as a payment instrument seller pursuant to part II of the Code.

15. Respondents knew Cash Cow was selling or issuing its own corporate check in return for accepting a customer's check.

16. Respondents knew Cash Cow was receiving consideration in the amount of ten dollars over and above the amount of the

    check it issued in return for issuance of its check. This constitutes the sale of a payment instrument under the statutes.

    Knowingly Violating Payment Instrument Requirement Provisions

    
    

17. By application dated July 13, 1995, Cash Cow sought to register as a check casher pursuant to Chapter 560, Florida Statutes. The application was signed by Swank.

18. Prior to the approval of the dated July 13, 1995 application, Cash Cow began advertising as a check casher.

    Specific Transactions

    
    

19. (a) Thomas Antony Bush has been a resident of Leon County, Florida, for approximately 19 years.

    1. He engaged in his first transaction with the Cash Cow in 1996. On his first visit he obtained a check in the amount of $100.00 from the Cash Cow. Within 15 days he paid the Cash Cow back $130.00.

    2. Mr. Bush engaged in two transactions where he obtained $200.00 from the Cash Cow, which he paid back the amount of $260.00 within 15 days.

    3. With respect to a third $200.00 transaction with the Cash Cow, Mr. Bush was late in repaying the Cash Cow back the amount of $260.00. With respect to the third $200.00 transaction, Mr. Bush was told that his check would be turned over to the Office of the State's Attorney. Ultimately, Mr. Bush paid the Cash Cow at least $260.00 with respect to the third

       $200.00 transaction.

    4. The total amount of money paid by Mr. Bush to the Cash Cow in the above transactions exceeds the $700.00 received from the Cash Cow by $210.00. This amount includes seven $10.00 "check cashing" fees and seven $20.00 "insufficient funds" fees.

with respect to her first transaction. Within 15 days she paid the Cash Cow back $130.00.

1. Ms. Sperry engaged in three other transactions with the Cash Cow and paid them all back within 15 days.

2. The total amount of money paid by Ms. Sperry to the Cash Cow in the transactions above exceeds the $400.00 received from the Cash Cow by $120.00. This amount includes four

$10.00 "check cashing" fees and four $20.00 "insufficient funds" fees.

1. (a) Gail Diane Hinson is presently a resident of Leon County. Prior to living in Leon County, Ms. Hinson lived in Gadsden County for 17-18 years.

   1. Ms. Hinson received a $200.00 check from the Cash Cow. She was unable to pay the Cash Cow the amount of $260.00 after 15 days and obtained an extension of 15 days by paying the Cash Cow $60.00. Ms. Hinson obtained a total of three extensions before paying the Cash Cow the amount of $260.00.

   2. The total amount of money paid by Ms. Hinson to the Cash Cow in the transactions above exceeds the $200.00 received from the Cash Cow by $240.00. This amount includes two

   $10.00 "check cashing" fees, two $20.00 "insufficient funds" fees, and six $30.00 extension fees.

2. (a) Debbie J. Whited is a resident of Sopchoppy, Florida.

   1. Ms. Whited's first transaction involved a $100.00 check from the Cash Cow. Ms. Whited paid the Cash Cow $130.00 within 15 days.

   2. Ms. Whited engaged in at least one $200.00 transaction with the Cash Cow. Ms. Whited paid the Cash Cow

      $260.00 within 15 days.

      
      

   3. The total amount of money paid by Ms. Whited to the Cash Cow in the transactions above exceeds the $300.00 received from the Cash Cow by $90.00. This amount includes three

   $10.00 "check cashing" fees and three $20.00 "insufficient fund" fees.

3. (a) Sheila Fields is a resident of Tallahassee, Florida.

   1. The first transaction Ms. Fields engaged in with the Cash Cow involved the amount of $100.00. After two weeks, Ms. Fields went to the Cash Cow and engaged in a $200.00 transaction because she did not have the money to pay off the first transaction. Ms. Fields used $100.00 of the $200.00

      received from the Cash Cow during the second transaction to pay off the first transaction. It cost Ms. Fields a total of $130.00 to pay off the first transaction.

   2. Ms. Fields was unable to repay the $200.00 transaction within two weeks. Ms. Fields paid the Cash Cow the amount of $60.00 every two weeks for three months.

   3. Ultimately, one of Ms. Fields' $110.00 checks cleared her account.

   4. The total amount of money paid by Ms. Fields to Cash Cow in the transactions above exceeded the $200.00 received from the Cash Cow by $400.00. This amount includes two $10.00 "check cashing" fees, one $20.00 "insufficient fund" fee, and twelve $30.00 extension fees.

4. (a) May Allen lives in Quincy, Florida.

   
   

   1. May Allen has had two or three transactions with the Cash Cow.

   2. In one transaction, Ms. Allen was not able to repay the transaction within 15 days. She was offered and obtained an extension. After obtaining the extension, Ms. Allen repaid the Cash Cow the amount of $130.00 within three or four days of obtaining the extension.

   3. Petitioner's Exhibit 8 relates to the last Cash Cow transaction that Ms. Allen entered into. Ms. Allen repaid the last transaction into which Ms. Allen entered. Ms. Allen repaid the last transaction within 15 days.

   4. The total amount of money paid by Ms. Allen to the Cash Cow in the transactions above exceeds the $100.00 received from the Cash Cow by $90.00. This amount is derived form two

   $10.00 "check cashing" fees, two $20.00 "insufficient fund" fees and one $30.00 extension fee.

5. The universal intent of all of the foregoing individuals in going to Cash Cow was to obtain a loan. All of the individuals above did not go to Cash Cow to "cash a check," or to purchase a negot4iable instrument. They went to Cash Cow to obtain a loan. That they received a negotiable instrument and that they paid $30.00 for the use of $100.00 for two weeks was not germane to their decision.

6. Their agreements do not indicate that the transactions are loans or the usurious rate they were charged. The Respondent argued that this "service" was socially useful. From these comments by Respondents' officers, it is clear that they were aware of the lending nature of their activities.

7. (a) A payment of $20.00 on a principal amount of

   
   

   $100.00 for 12 days, is an annualized interest rate of 600%.

   
   

   1. A payment of $30.00 on a principal amount of

      
      

      $100.00 for 15 days is an annualized interest rate of 730%.

      
      

   2. A payment of $30.00 on a principal amount of

      
      

      $100.00 for 14 days is an annualized interest rate of 782%.

      
      

   3. A payment of $20.00 on a principal amount of

      
      

      $100.00 for 15 days is an annualized interest rate of 486%.

   4. A payment of $10.00 on a principal amount of

      
      

      $100.00 for 3 days is an annualized interest rate of 1,216%.

      
      

   5. A payment of $30.00 on a principal amount of

   
   

   $100.00 for 7 days is an annualized interest rate of 1,564%.

   
   

8. (a) From January through December 1996, the Cash Cow engaged in 4,619 transactions.

   (b) In most transactions the customers of the Cash Cow would pay $30.00 for a $100.00 Cash Cow check and redeem their personal checks in two weeks. The $30.00 is considered an interest payment, and the annualized rate is 782%.

   CONCLUSIONS OF LAW

   
   

9. The Division of Administrative Hearings has jurisdiction over the parties and subject matter in this case.

10. Because the Department has sought penalties which include the revocation of Cash Cow's registration as a check casher, the removal and barring of its President, and other sanctions, the Department has the burden of proving by clear and convincing evidence that Cash Cow and Swank committed the violations alleged in the Administrative Complaint. Department of Banking and Finance v. Osbourne Stern, 670 So. 2d 932 (Fla. 1996); Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987); Section 120.57(1)(h), Florida Statutes, (1997).

11. "Clear and convincing evidence is an intermediate standard of proof, more than the 'preponderance of the evidence' standard used in most civil cases, and less than the 'beyond a

    reasonable doubt' standard used in criminal cases." Smith v. Department of Health and Rehabilitative Services of Health and Rehabilitative Services, 522 So. 2d 956, 958 (Fla. 1st DCA 1988). Clear and convincing evidence requires:

    that the evidence must be found to be credible; the fact to which the witnesses testify must be precise and explicit and the witnesses must be lacking in confusion as to the fact in issue. The evidence must be of such weight that it produces in the mind of the trier of fact a firm belief or conviction, without hesitancy, as to the truth of the allegations sought to be established.

    Smith, 522 So. 2d at 958 (quoting Slomowitz v. Walker, 429 So. 2d 797, 800 (Fla. 4th DCA 1983)).

    Jurisdiction of Department To Discipline Respondents

    
    

12. Section 560.117, Florida Statutes, provides that the Department may initiate a Chapter 120 proceeding by a complaint to impose an administrative penalty against any person found to have violated any provision of the money transmitter Code.

13. Section 560.103(10), Florida Statutes, defines "money transmitter" as any person who acts as a payment instrument seller or check casher located in or doing business in this state.

14. A "payment instrument seller" is defined by Section 560.103(15), as a person who sells a payment instrument.

15. Section 560.103(14), Florida Statutes, defines a "payment instrument" as a check, draft, warrant, money order,

    travelers check as other instrument. It does not include an instrument redeemable in merchandise, service, a credit card voucher or letter of credit.

16. Section 560.114, Florida Statutes, provides that certain acts by a money transmitter are violations of the Code and constitute grounds for the issuance of cease and desist orders, removal orders, denial of registration, suspension or revocation of registration, and the taking of an other action within the authority of the Department of Banking and Finance.

17. Section 560.125, Florida Statutes, provides that no person not registered as a money transmitter may engage in the business of a money transmitter.

18. Taken together, the chapter prohibits the sale of payment instruments by persons not registered as money transmitters, and gives the Department jurisdiction over unregistered violators of the code. Persons registered as check cashers are specifically prohibited from engaging in the activities authorized in Part II of Chapter 560, Florida Statutes, relating to the sale of payment instruments.

    Classifying the Respondents' Transactions

    
    

19. Section 560.302(1), Florida Statutes, defines "cashing" as providing currency for payment instruments. An exception exist for travelers checks and foreign payment instruments which are not at issue in this case. A "check casher" is defined by

    Section 560.01(3), Florida Statutes, as a person who, for compensation, sells currency in exchange for payment instruments.

20. Section 516.01(2), Florida Statutes, defines a "consumer finance loan" as a loan of money, credit, goods or chose in action . . . in an amount or to a value of $25,000.00 or less for which the lender charges or receives interest at a rate greater than 18% per annum.

21. Section 516.01(4), Florida Statutes, defines "interest" to be the costs of obtaining a consumer finance loan and includes any profit advantage of any kind whatsoever that the lender may charge, contract for, collect, receive or in anywise obtain.

22. Section 516.02(1), Florida Statutes, provides a person must be licensed by the Department of Banking and Finance to make consumer finance loans, and subsection (2) provides that the lender may not charge an interest rate in excess of 18%.

    Although there are some exemptions and exceptions, none are applicable to the Respondents or the instant transactions. Section 516.031(3), Florida Statutes, provides that any charges, including interest, in excess of the combined total authorized by Chapter 516, constitutes a violation of Chapter 687 governing interest and usury. In summary, the provisions of Chapter 687 place the permissible interest rate at no greater than 18% per annum simple interest if the debt is less than $500,000.00.

23. The facts show that, in approximately half its transactions, the Respondents agreed to forego presentment of the

    checks with which its payment instruments were purchased. In each case, this is a consumer finance loan, and the Respondents were financing the purchase of their payment instruments with consumer finance loans.

24. The Department has shown multiple violations of various statutes, many simultaneously violating two provisions in each transaction as discussed below.

    Payment Instrument Sales

    
    

25. Counts I and III allege that Respondents knowingly failed to comply with the payment instrument sales prohibition contained in Section 560.303(2), Florida Statutes, by engaging in payment instrument sales. Counts II and IV allege that Respondents knowingly engaged in payment instrument sales without registering as required by Section 560.204(1), Florida Statutes.

26. Section 560.303(2), Florida Statutes, relating to check cashing states:

    A person registered pursuant to this part may engage in the activities authorized by this part. A person registered under this part is prohibited from engaging directly in the activities that are authorized under a registration issued pursuant to part II . . .

    
    

27. A registration pursuant to part II permits the registrant to engage in payment instrument sales.

    See Section 560.204(1), Florida Statutes. The Respondents were not registered under part II. The Respondents were prohibited from selling payment instruments.

28. The Department has shown by clear and convincing evidence that Swank has knowingly allowed Cash Cow to engage in the activities of a payment instrument seller. Swank knew Cash Cow issued its own corporate checks to its customers for consideration in the amount of ten dollars ($10).

29. The Code is clear and unambiguous. A person who sells currency is a check casher. See Section 560.103(4), Florida Statutes. A person who issues a check for compensation is a payment instrument seller. See Section 560.103(15)(19), Florida Statutes. Furthermore, the Code clearly and unambiguously prohibits a registered check casher "from engaging directly" in the sale or issuance of a payment instrument. See

    Section 560.303(2), Florida Statutes. The Respondents knew what they were doing. They did not make a "mistake of law."

30. Failure to obtain the proper registration is not merely a technical violation. Section 560.209(1), Florida Statutes, requires every payment instrument seller to have a net worth of at least $100,000, plus an additional $50,000.00 for each additional location. In addition, there are bonding and liquidity requirements. See Sections 560.209(2), 560.210, Florida Statutes. Check cashers do not have similar requirements. See Section 560.301 et seq., Florida Statutes.

    Misrepresentation

    
    

31. Count V alleges that Respondents engaged in fraud, misrepresentation, deceit, or gross negligence in money

    transmitter transactions, in violation of Section 560.114(1)(b), Florida Statutes, by charging a non-sufficient funds charge in repayment and extension transactions.

32. Respondents charged a $20 fee on each $100 check which was termed a "nonsufficient funds charge." The Respondent's attempt to justify the "non-sufficient funds charge" by reference to Section 68.065, Florida Statutes, (1996 Supp.).

33. Section 68.065, Florida Statutes, (1996 Supp.), states, in pertinent part, with emphasis added:

    1. In any civil action brought for the purpose of collecting a check, draft, or order of payment, the payment of which was refused by the drawee because of the lack of funds, credit, or an account, and where the maker or drawer fails to pay the amount owing, in cash, to the payee within 30 days following a written demand therefore, as provided in subsection (3), the maker or drawer shall be liable to the payee, in addition to the amount owing upon such check, draft, or order for damages of triple the amount so owing . . . .

       
       

    2. The payee may also charge the maker or drawer of the check, draft, or order of payment a service charge not to exceed the service fees authorized under Section 832.08(5) or 5 percent of the face amount of the instrument, whichever is greater, when making written demand for payment Any

       bank fees incurred by the payee may be charged to the maker or drawer of the check, draft, or order of payment.

       
       

    3. Before recovery under subsection (1) or subsection (2) may be claimed, a written demand shall be delivered by certified or registered mail, evidenced by return receipt, to the maker or drawer of the check, draft, or order of payment . . . .

34. The foregoing statute which permits the non-sufficient funds fee, predicates the charge and its recovery upon written notice, and mentions the requirement for written notice three times.

35. The evidence shows that no written demand was made to the maker or drawer of the check. To the contrary, the Department has shown, through clear and convincing evidence, that the $20.00 fee was collected contemporaneously with the acceptance of the customer's check for $110.00. Respondents only sent the statutorily mandated letter as a matter of last resort when checks were not "redeemed."

36. Regarding the terms of Respondent's contract, an agreement which violates a constitutional provision or a statute, or which cannot be performed without violating one or the other, is illegal and void, and will not be enforced. 11 Fla. Jur. 2d, Contracts Section 114 (1997)(citations omitted). Therefore, Cash Cow's contract providing for the imposition of the $20.00 fee without first complying with Section 68.065, Florida Statutes, (1996 Supp.) was unenforceable and void. The $20.00 fee was not a "non-sufficient fund fee," and the money was collected and retained along with the $10.00 charge for the payment instrument at the outset of the transaction. When the drawer did not redeem his or her check in 3 days, Cash Cow extended the time to redeem the check for two weeks.

37. The Department alleged that the Cash Cow and Swank's actions were in violation of Chapter 516 for making consumer finance loans without a license in violation of Sections 516.02(1) and (2)(a)(c), Florida Statutes. Respondents do not dispute that when they charged what was represented to be a "non- sufficient funds charge", the customers were given approximately

    12 additional days to repay Respondents during which time the customers' checks were held and not presented for payment. In addition, Respondents regularly permitted customers to obtain additional 15 day extensions by paying an additional $30.00 for each $100.00 obtained from the Cash Cow.

38. A loan is "[d]elivery by one party to and receipt by another party of [a] sum of money upon agreement, express or implied, to repay it with or without interest." Black's Law Dictionary 936(6th ed. 1990); see also Wenck v. Insurance Agents Finance Corp., 99 So. 2d 883, 886 (Fla. 3d DCA 1958). "Interest

    . . . is the cost of hiring money or from the lenders point of view, the return for loaning it. It is compensation paid by a borrower to a lender for the use of . . . money. . . [.]" Parker v. Brinson Construction Co., 78 So. 2d 873, 874 (Fla. 1955); see also Black's Law Dictionary 812 ("Interest is the compensation allowed by law or fixed by the parties for the use or forbearance of borrowed money.").

39. In determining whether an item is to be treated as interest "the court may disregard the form of the agreement and

    consider the substance of the transaction." Antonelli v. Neumann, 537 So. 2d 1027, 1029 (Fla. 3d DCA 1988). The Florida Supreme Court stated in the case of Beacham v. Carr, 166 So. 456, 458 (Fla. 1936):

    The cupidity of lenders, and the willingness of borrowers to concede whatever may be demanded or to promise whatever may be exacted in order to obtain temporary relief from financial embarrassment, as would naturally be expected, have resulted in a great variety of devices to evade the usury laws; and to frustrate such evasions the courts have been compelled to look beyond the form of a transaction to its substance, and they have laid it down as an inflexible rule that the mere form is immaterial, but that it is the substance which must be considered.

40. The facts of this case are similar to that in the case

    
    

    of In re Miller a "renewal" fee was charged. The court observed:

    
    

    Further, for the defendants to argue that they are not extending credit is disingenuous. They are disbursing funds to people like the plaintiff on the promise of repayment of the sum plus the "service charge," at a later time. If this is not an extension of credit, this Court finds it hard to imagine any transaction that is.

    Id. at 974. The case of In re Brigance, 219 B.R. 486(Bankr. W.D. Tenn. 1998), involved check cashing service charges and "renewal fees." That court concluded:

    This Court agrees that the transactions which are at issue in these cases present more than the mere cashing of checks. When a check is cashed at a bank or grocery store, there is no separate agreement whereby the check is held for a specified period of time during which the drawer may redeem the check. The transaction contemplated clearly is a short- term extension of credit.

    See also Hamilton v. York, 987 F.Supp. 953 (E.D.Ky.1997).

    
    

41. Based upon the foregoing, there is clear and convincing evidence to support the conclusion that the "non-sufficient funds charge," which gave the customers of Cash Cow 12 to 15 days to repay Respondents, is interest as is the $30.00 extension fee. Furthermore, charging $20.00 interest on $100.00 for 12 days exceeds the rate of 18% per annum as does the $30.00 extension fee. Such charges are unenforceable. See Section 516.02(2)(c), Florida Statutes; see also Title & Trust Co. Of Fla. v. Parker,

    468 So. 2d 520, 523-24 (Fla. 1st DCA 1985). In addition, it is settled that unlicensed persons are not entitled to receive compensation for loans in Florida. Spiro v. Highlands General Hospital, 489 So. 2d 802 (Fla. 2d DCA 1986); Cooper v. Paris, 413 So. 2d 772 (Fla. 1st DCA 1982); Rolls v. Bliss & Nyitray, inc.,

    408 So. 2d 229, 234 (Fla. 3d DCA 1982); Winder v. Surfview Realty, Inc., 400 So. 2d 839 (Fla. 5th DCA 1981); Meadows of Beautiful Bronson, Inc. v. E.G.L. Investment Corp., 353 So. 2d

    199 (Fla. 3d 1977); D&L Harrod, Inc. v. U.S. Precast Corp., 322 So. 2d 630 (Fla. 3d DCA 1975); Edwards v. Trulis, 212 So. 2d 893 (Fla. 1st DCA 1968); Gaisford v. Neuschatz, 201 So. 2d 635 (Fla. 4th DCA 1967).

42. Accordingly, Respondents improperly collected fees from their customers, which were a mere contrivance to avoid Chapter

    516 and Florida's usury laws and, as such, are clearly excessive. Thus, the Cash Cow and Swank acted in violation of Chapter 516 by

    making consumer finance loans without a license in violation of Sections 516.02(1) and (2)(a)(c), Florida Statutes, and levying charges is also a violation of Section 516.03(3), Florida Statutes.

43. The contracts of Respondents constitute fraud and misrepresentation contrary to Section 560.114(1)(b) as alleged in Counts V, VI, VII and VIII, by representing that Respondents were cashing checks and the "non-sufficient funds fee" was due. By collecting and retaining these fees and the extension fees the Respondents violated the prohibitions against making loans and charging excessive interest rates.

44. The actions of the Respondents in holding itself out as a check casher when it was engaging in payment instrument sales and making consumer finance loans was false and deceptive advertising as alleged in Court IX. By "sailing under false colors," the Respondents not only avoided regulation but did not properly reveal the terms of the loans as required by law to the consumer.

45. The Respondents made consumer finance loans as alleged in Count XIII without being licensed to do contrary to Chapter

560. Further, the fees charged by Respondents exceed 18% contrary to 516.02(2)(a), Florida Statutes, as alleged in Count

XIV. This conduct of the Respondents also violated 516.03(3), and 516.07(1)(e)1, Florida Statutes, as alleged in Count XVII and XVIII.

1. The allegations of Count XV do not constitute an offense as stated. The loans may not have been enforceable, and the rates may have been unlawful; however, making loans that are unenforceable is not an offense.

2. Count XVI alleges the Respondents charged a non- sufficient fund fee without presenting the item for payment. These may have been waived, however, the statutory requirements to give written notice cannot be waived.

3. The evidence shows Respondents technically violated Chapter 560, Florida Statutes, by advertising as a check casher prior to being registered. This, however, is a technical violation, and the advertising in the yellow pages must be placed at a given time. This is of no consequence.

4. It is appropriate for the Department to enter a cease and desist order against Respondents prohibiting Respondents from making additional consumer finance loans in violation of Florida law or from attempting to collect amounts due on transactions which have not been repaid.

   Fines

   
   

5. The Department has also petitioned for the imposition of administrative fines and restriction of the Respondents from future registration.

6. The provision of Chapter 560, Florida Statutes, relating to fines provides that the Department must notify the Respondents of the alleged violation and give the Respondents an

   opportunity to correct or cease the activity. The record indicates the Respondents ceased the activity after the complaint was filed. A fine would not be authorized under Chapter 560, Florida Statutes.

7. However, Section 516.23(2)(c), Florida Statutes, regulating consumer finance, states that the Department may:

   Impose and collect an administrative fine against any person found to have violated any provision of this chapter, any rule or order adopted under this chapter, or any written agreement entered into with the Department, in an amount not to exceed $1000.00 for each violation.

   
   

8. At the hearing it was established the Respondents engaged in at least 4,619 transactions half of which were paid back in 15 days. This amounts to at least 2,309 transactions where fees in the amount of $30.00 for each transaction were collected for loans by Petitioner in violation of Chapter 516. Accordingly, the evidence established that Respondents have collected at least $46,180.00 in illegal fees. It has been established that the collection of such fees was improper and illegal. Respondents may be fined $1000.00 for each violation; however, this would be excessive. To take the profit out of the activity conducted in violation of Florida law and serve as notice to others, a fine of $100.00 per transaction is recommended, i.e., an amount of $230,900.00.

9. An order revoking the Respondents' registration as a check casher is warranted.

10. There is no statutory provision which would restrict the Respondents from applying for registration.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law set forth herein, it is,

RECOMMENDED:

That the Department of Banking and Finance enter a Final Order to

1. Cease and desist Cash Cow and Swank from violating Chapters 516 and 560, Florida Statutes, and from further efforts to collect moneys allegedly due to Cash Cow on "check cashing" transactions which have not been repaid by the customer;

2. Revoke any and all Chapter 560, Florida Statutes, registrations issued;

3. Remove Swank as a money transmitter affiliated-party, as that term is defined in Section 560.103(11), Florida Statutes, of Cash Cow; and

4. Fine Cash Cow and Swank, jointly and severally

$230,000.00.

DONE AND ENTERED this 2nd day of February, 1999, in Tallahassee, Leon County, Florida.

STEPHEN F. DEAN

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 2nd day of February, 1999.

COPIES FURNISHED:

Robert Alan Fox, Esquire Paul C. Stadler, Esquire Assistant General Counsels

Department of Banking and Finance Suite 526, The Fletcher Building

101 East Gaines Street Tallahassee, Florida 32399-0350

Richard M. Powers, Esquire

315 South Calhoun Street, Suite 308 Tallahassee, Florida 32301

Honorable Robert F. Milligan Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350

Harry Hooper, General Counsel Department of Banking and Finance Suite 526, The Fletcher Building

101 East Gaines Street Tallahassee, Florida 32399-0350

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15 days from the date of this recommended order. Any exceptions to this recommended order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 97-002375

Orders for Case No: 97-002375