ORDERS:
FINAL ORDER AND DECISION
STATEMENT OF THE CASE
This matter is before the Administrative Law Court (“ALC” or “Court”) pursuant to a Petition filed on February 12, 2007, by the South Carolina Department of Consumer Affairs (“Department”) seeking, among other relief, an Order from this Court requiring Respondent Michael S. Smith d/b/a Smith Financial Services d/b/a Smith Company d/b/a Credit Correctors (“Respondent”) to cease and desist from offering and/or engaging in credit counseling services in violation of the South Carolina Consumer Credit Counseling Act (“Act”), S.C. Code Ann. § 37-7-101 et seq. A hearing was held before me on May 1, 2007 at the offices of the ALC in Columbia, South Carolina.
FINDINGS OF FACT
Having observed the witnesses and exhibits presented at the hearing and closely passed upon their credibility, taking into consideration the burden of persuasion of the parties, I make the following findings of fact by a preponderance of evidence:
1. Michael S. “Sam” Smith, a resident of Sumter, South Carolina, is the sole proprietor of Smith Financial Services, d/b/a Smith Company, and d/b/a Credit Correctors, located at 3501 Broad Street Extension, Sumter, South Carolina (“location”). He has operated Smith Financial Services since July 2000.
2. Mr. Smith’s previous work experience included employment in mobile home sales and employment with a mortgage company.
3. Respondent offers services to residents of South Carolina and North Carolina that are “guaranteed” to “correct” their credit. Individuals must complete and sign a contract with Smith Company and pay a fee. Each contract states that Smith Company is “[a] professional and confidential credit improvement company.” Further, on several occasions, Mr. Smith signed the contracts with the hand-written statement, “We guarantee to improve your record” above his signature.
4. Single consumers who enter into contracts with Respondent pay $275.00 for the first month of service; joint consumers pay $550.00 for the first month of service. If Respondent requires two months to complete the credit services work, no additional fees are charged. If the services require three months to complete, single consumers pay an additional $100.00 during the second month of service, and joint consumers pay an additional $200.00 during the second month of service.
5. Respondent entered into at least four (4) contracts with residents of South Carolina in 2006; however, Respondent did not collect the entire amount owed pursuant to the terms of the contracts. Rather, he collected an amount between $150.00 and $350.00 from each consumer.
6. The Department conducted an on-site investigation of Respondent’s activities and notified Mr. Smith by letter dated January 12, 2006 that he had engaged in activities that required licensure by the Department. The notification letter contained instructions for applying for the license.
7. In February 2006, Mr. Smith submitted a Credit Counseling Organization Application packet to the Department. However, because he had not submitted certain required items with the application, the Department notified Respondent by letter dated June 2, 2006, that he must cease and desist from advertising and providing credit counseling services.
8. After receipt of the Department’s June 2, 2006 letter, Respondent continued to place advertisements in local newspapers offering services to “correct” consumer credit records. Respondent ran advertisements in The Item, a newspaper in Sumter, South Carolina, on at least the following dates: July 4, 2006, September 18, 2006, October 9, 2006, October 31, 2006, December 24, 2006 and April 26, 2007. Also, Respondent ran advertisements in the Florence Morning News on at least two occasions, on April 19, 2006 and June 12, 2006. Although the advertisements listed different business names, Respondent’s business address and/or his business and cell telephone numbers appeared in each advertisement.
9. Respondent owns a commercial truck that has the words “We Clean Credit” in large font, the name “Smith Company ‘The Credit Man’” and a business telephone number on its side. Occasionally, Respondent conducts seminars to inform interested consumers of the services he offers. He usually drives this commercial truck to these seminars. When the truck is not used for business purposes away from the location, it is parked alongside the highway near the location.
10. Respondent submitted an application on March 13, 2007, to Sumter County for a business license for “We Clean Credit/Smith Company,” located at 3501 Broad St, Sumter, South Carolina. On the application, he reported gross receipts of $118,210.00 for the year 2006. On that same date, he also submitted an application to Sumter County for a business license for “Phoenix Financial Services” that would operate at the same location as Smith Financial Services/Smith Company. On that application, he reported gross receipts for 2006 in the amount of $2,160.00.
DISCUSSION AND CONCLUSIONS OF LAW
The Department contends that Respondent operates a credit counseling organization and has offered and engaged in credit counseling services in violation of the Act without having first obtained a license as required by the Act. The Department seeks an order from this Court requiring Respondent to cease and desist from offering and/or engaging in credit counseling services. Respondent, however, asserts that the services he offers are not “credit counseling services” and that he is not subject to regulation by the Department.
Pursuant to the Act, a person may not engage in consumer credit counseling services in South Carolina unless the person has obtained a license from the Department. S.C. Code Ann. § 37-7-102 (2005). “Consumer credit counseling services,” includes, among other services, “improving or offering to improve a consumer’s credit record, history or rating.” S.C. Code Ann. § 37-7-101(3)(b) (2005). Further, a person operates a “consumer counseling organization” if the person provides or offers to provide consumer credit counseling services either for or in the expectation of a fee, compensation, or gain. S.C. Code Ann. § 37-7-101(2) (2005).
The Department argues that Respondent must obtain a license from it before providing or offering services to improve a consumer’s credit record, history or rating. Respondent, however, asserts that he can not improve or make an offer to improve a consumer’s credit record, history, or rating, because only a credit bureau can improve a credit record or rating. Rather, he argues that he merely offers credit correction services which involve asking credit bureaus to correct errors on a consumer’s credit record.
Clearly, the services Respondent offers to consumers ultimately result in the improvement of their credit records or ratings. When Respondent is successful in convincing a credit bureau to remove or correct erroneous information on a consumer’s credit record, the correction will likely result in an increase in the consumer’s credit score which constitutes an improvement in the consumer’s credit record, history, or rating.
Further, Respondent’s contract states that Smith Company is “[a] professional and confidential credit improvement company.” In addition, on several occasions Mr. Smith signed contracts with the hand-written statement, “We guarantee to improve your record” above his signature. Also, Respondent has placed advertisements in The Item and the Florence Morning News, offering services to “correct” consumer credit records, which could cause an individual to believe that he is offering to improve his/her “bad” credit record, history, or rating.
Accordingly, I find that the services which Respondent offers and engages constitute “consumer credit counseling services” as defined in Section 37-7-101(3)(b) and that Respondent must obtain a license from the Department prior to offering and/or engaging in those services with consumers in this state.
Respondent asserts that he no longer offers credit correction services to individuals in South Carolina. S.C. Code Ann. § 37-7-101(2) provides that, “ The business of credit counseling is conducted in this State if the credit counseling organizations, its employees, or its agent are located in this State or if a credit counseling organization solicits or contracts with debtors located within this State.” (emphasis added.) After receipt of the Department’s June 2, 2006 cease and desist letter, Respondent continued to offer credit counseling services to South Carolina consumers through advertisements placed in local newspapers and by the display on his commercial truck. Accordingly, he has violated the provisions of the Act by soliciting debtors in South Carolina without having obtained a license to engage in credit counseling services from the Department.
Further, the Department asserts that Respondent has charged fees for his consumer credit counseling services in excess of those allowed by the Act. S.C. Code Ann. § 37-7-112 (2005) provides that “[a] licensee may not charge a consumer a fee except as established by the department by regulation.” Regulation 28-700(B)(1)(2006), which sets forth the fees that may be charged, provides:
(1) A licensee may not charge or receive from a consumer, directly or indirectly, a fee except the following:
(a) an initial consultation fee, not to exceed fifty dollars for each consumer;
…
(c) additional maintenance fees, not to exceed forty dollars for each month;
(d) a reinstatement fee, not to exceed twenty-five dollars
Respondent’s fees exceeded these allowable charges. Although Respondent asserts he never required consumers to pay the entire amount due under the contract, instead receiving amounts ranging from $150 to $350 from each consumer, the fees he collected still exceed those allowed by the regulation.
Lastly, the Department asks this Court to deny Respondent’s application for licensure to operate as a credit counseling organization. However, that issue is not properly before the Court at this time. The matter before the Court is brought under S.C. Code Ann. § 37-6-108 wherein the Department seeks enforcement of its administrative order requiring Respondent to cease and desist from operating as a consumer credit counseling organization and from offering and engaging in consumer credit counseling services. Basic administrative law principles establish that an agency bears the burden of proof in an enforcement action. See Peabody Coal Co. v. Ralston, 578 N.E.2d 751 (Ind. Ct. App. 1991); Randy R. Lowell and Stephen P. Bates, South Carolina Administrative Practice and Procedure, 200-201 (2004). Accordingly, the Department bears the burden of proof in this matter. Any action challenging a final decision of the Department denying Respondent’s application for licensure under the Act would be a matter properly brought before this Court by Respondent, in which he would bear the burden of proof.
S.C. Code Ann. § 37-7-119(C) (2005) provides that the Department may impose administrative fines in amounts not more than five hundred dollars for each offense or not more than five thousand dollars for the same set of transactions or occurrences upon persons violating the provisions of Chapter 7 of Title 37. This section provides that each violation constitutes a separate offense. Inherent in and fundamental to the powers of an Administrative Law Judge, as the trier of fact, is the authority to decide the appropriate sanction. Walker v. South Carolina ABC Comm’n, 305 S.C. 209, 407 S.E. 2d 633 (1991). In deciding what penalty amount is appropriate, the weight and credibility assigned to evidentiary factors bearing on the issue are matters within the province of the trier of fact. See S.C. Cable Television Ass’n v. Southern Bell Tel. and Tel. Co., 308 S.C. 216, 417 S.E.2d 586 (1992). Because Respondent continued to run advertisements in The Item and the Florence Morning News after receipt of the Department’s June 2, 2006 cease and desist letter, pursuant to section 37-7-119(C), I find that Respondent shall pay to the Department a fine of $2,500.00 for the unlawful placement of advertisements in The Item newspaper, and a fine of $500.00 for the unlawful placement of an advertisement in the Florence Morning News newspaper. Further, because Respondent charged fees in excess of those allowed under the Act, Respondent shall also pay to the Department a fine in the amount of $2,000.00. These fines, totaling $5,000.00, must be paid to the Department within sixty (60) days of the date of this Order.
On July 10, 2007, the Department filed a Motion to Reopen the Record in this matter due to previously undisclosed evidence discovered after the May 1, 2007 hearing. After reviewing the Motion and supporting documentation, I find that the Motion should be denied because the evidence the Department seeks to introduce would not have a material effect on the outcome of this matter.
ORDER
Therefore, based upon the foregoing, it is hereby
ORDERED that Respondent, his agents or assigns, shall immediately cease and desist from offering consumer credit counseling services to, or engaging in consumer credit counseling services with, consumers in this state. This includes no longer running advertisements offering credit counseling services to the public and no longer displaying these advertisements on his commercial truck; and it is further
ORDERED that Respondent, his agents or assigns, within sixty (60) days of the date of this Order, shall refund all monies collected under contracts entered into with South Carolina consumers between December 2, 2005 and June 1, 2006 which exceed the maximum amount allowable by Regulation 28-700(B)(1) (2006), and shall provide a listing and proof of such to the Department within sixty (60) days of the date of this order; and it is further
ORDERED that Respondent, his agents or assigns, within sixty (60) of the date of this Order, shall refund the entire sum of monies collected under any contracts Respondent entered into with South Carolina consumers after June 1, 2006, and shall provide a listing and proof of such to the Department within sixty (60) days of the date of this order; and it is further
ORDERED that Respondent shall remit to the Department within sixty (60) days of the date of this Order, a fine in the amount of $2,500.00 for the unlawful placement of advertisements in The Item newspaper, a fine of $500.00 for the unlawful placement of advertisements in the Florence Morning News newspaper, and a fine of $2,000.00 for charging excessive fees to consumers, for a total fine of $5,000.00; and it is further
ORDERED that the Department’s Motion to Reopen the Record is denied; and it is further
ORDERED that all other relief sought by the Department herein is DENIED.
AND IT IS SO ORDERED.
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July 19, 2007 Marvin F. Kittrell
Columbia, South Carolina Chief Administrative Law Judge
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