ORDERS:
ORDER
STATEMENT
OF THE CASE
This
matter is before the Administrative Law Court (“ALC” or “Court”) pursuant to a
request for a contested case hearing filed by Lexington Law Firm (“Petitioner”
or “Lexington Law”) challenging the South Carolina Department of Consumer
Affairs’ (“Respondent” or “Department”) final agency determination dated November
16, 2006, which “denied” Petitioner exemption status under the Consumer Credit
Counseling Act, S.C. Code Ann. §§ 37-7-101 et seq. (“Act”).
As a preliminary matter, Lexington Law Firm challenged the Department’s
authority to “grant” or “deny” exemptions under the Act. Both parties filed
briefs on that issue and the Court heard oral arguments on May 24, 2007. For
the reasons set forth below, I conclude that the Department lacks the authority
to grant or deny exemptions under the Act. Accordingly, as “attorneys at law” Lexington
Law is exempt from the application of the Act pursuant to S.C. Code. Ann. §
37-7-101(2)(b)(i).
BACKGROUND
The
material facts relevant to this matter are not in dispute. Lexington Law is a
law firm based in Utah. It provides legal services to its clients, including
representation under the provisions of the Fair Credit Reporting Act, 15 U.S.C.
§ 1681 et seq. and other provisions of federal law. Lexington Law
assists its clients, using various remedies available to them under federal
law, in repairing inaccurate credit reports issued by various consumer
reporting agencies. Lexington Law’s attorneys are licensed to practice law in Utah in both state and federal courts.
In
2005, the South Carolina General Assembly enacted the Consumer Credit
Counseling Act, S.C. Code Ann. § 37-7-101 et seq. which regulates
companies and persons who provide credit repair services to consumers in South
Carolina. It requires the Department to enforce the provisions of the Act, and
to grant, deny or revoke licenses to licensees who engage in credit counseling
services. See S.C. Code Ann. §§ 37-7-101, 37-7-102 and 37-7-104 (Supp.
2006).
In
June 2006, the Department contacted Lexington Law to advise of the existence of
the Act and the requirements for licensure. It instructed Lexington Law to inform
the Department if it felt it had “received this correspondence in error”
because its activities were not subject to the Act or to otherwise respond if
“you still think [Lexington Law] is exempt from the [Act].” See June
29, 2006 letter.
Lexington
Law communicated with the Department by telephone and then responded in
writing, advising the Department that Lexington Law is a law firm. Pursuant to
Section 37-7-101(2)(b)(i) Lexington Law averred that it was “therefore exempt,
from registering with the Department under the ‘Act’…” See July 25, 2006
letter. Section 37-7-101(2)(b)(i) provides, “Credit counseling organizations
[who must be licensed under the Act]…does not include the following when acting
in the regular course of their respective businesses and professions:…attorneys
at law.” (Emphasis added).
The
Department responded to Lexington Law on August 4, 2006, advising that the
attorney exemption was only available to attorneys who were acting in the regular
course of their business: “This means that the dispute of credit report errors
is not the primary reason for the retention of Lexington Law Firm, but must be
ancillary to such retention.” See August 4, 2006 letter. It was the
Department’s position that the exemption was only available if an attorney was
already representing a client in another matter when the credit counseling
services were provided “and no separate fees are being charged to the consumer”
for the credit counseling services. Id.
A series
of correspondence was exchanged between the Department and Lexington Law. On
September 18, 2006, the Department informed Lexington Law that it “does not
feel that Lexington Law Firm engages in credit counseling services when acting
in the regular course of their respective profession.” See September
18, 2006 letter. Later, in November 2006, the Department advised that:
The Department has
decided to confirm the decision not to grant Lexington Law Firm the attorney
exemption under the Consumer Credit Counseling Act….
***
The Department has chosen not to grant
Lexington Law Firm the attorney exemption under S.C. Code Ann. §
37-7-101(2)(b)(i)….
See Letters dated November 1, 2006 and November 16, 2006.
Lexington
Law filed a request for a hearing with the ALC challenging the Department’s
authority to grant or deny exemptions under the Act, and seeking a
determination that it is exempt from the application of the Act under Section
37-7-101(2)(b)(i).
DISCUSSION
Because
the material facts are not in dispute, the only question to be resolved is a
question of law. Accordingly, this matter is one appropriate for summary
judgment. “Summary judgment is appropriate when it is clear there is no genuine
issue of material fact and the moving party is entitled to judgment as a matter
of law.” Bishop v. South Carolina Dep’t of Mental Health, 331 S.C. 79,
81, 502 S.E.2d 78, 85 (1998). See also Rule 56(C), SCRCP. “In
determining whether any triable issues of fact exist, the evidence and all
inferences which can be reasonably drawn [therefrom] must be viewed in the
light most favorable to the nonmoving party.” Strother v. Lexington County Recreation Comm’n, 332 S.C. 54, 61, 504 S.E.2d 117, 121 (1998).
The
Consumer Credit Counseling Act vests the Department with the authority to
license and regulate credit counselors and the provision of credit counseling
services in South Carolina. See S.C. Code Ann. §§ 37-7-101, 37-7-102
and 37-7-104 (Supp. 2006). However, by its express terms, the Act exempts
certain professions from regulation by the Department.
Specifically, the Act exempts from the definition of “credit counseling
organization,” “attorneys at law” when acting in the regular course of their professions.”
S.C. Code Ann. § 37-7-101(2)(b)(i). Further, for the exemption to apply there
is nothing in this section that requires attorneys to be licensed in the state
of South Carolina.
The
Department argues that since it has the authority to initiate cease and desist
orders, pursuant to S.C. Code Ann. §§ 36-6-108 and 37-7-106, it necessarily has
the right to determine whether someone’s activities fall within the exemption in
order to determine whether to seek a cease and desist order and/or to assess
administrative fines. However, having the authority to issue cease and desist
orders against those not exempt from application of the Act does not give the
Department the authority to determine whether someone’s activities fall within
the exemption since the legislature has already made that determination.
The
Department’s jurisdiction is established, and limited, by the Act. “It is
elementary law that ‘administrative agencies are creatures of statute and their power is dependent upon statute, so that they must find within
the statute warrant for the exercise of any authority which they claim.’” Mungo v. Smith, 289 S.C. 560,
564, 347 S.E.2d 514, 517 (Ct. App. 1986), quoting 1 Am.Jur.2d Administrative
Law § 70. See also Calhoun Life Ins. Co. v. Gambrell,
245 S.C. 406, 140 S.E.2d 774 (1965). Furthermore, an administrative agency “is possessed of only those powers expressly conferred or necessarily implied for it to
effectively fulfill the duties with which it is charged.” Captain’s
Quarters Motor Inn, Inc. v. S.C. Coastal Council, 306 S.C. 488, 489, 413
S.E.2d 13, 14 (1991) (emphasis added). See also Black River
Elec. Coop., Inc. v. Public Serv. Comm’n, 238 S.C. 282, 120 S.E.2d 6,
(1961); Responsible Economic Development v. S.C. Dep’t of Health and Envtl.
Control, 371 S.C. 547, 553 641 S.E.2d 425, 428 (2007) (holding that DHEC
only has the authority granted to it by the Legislature). “Any reasonable doubt
of the existence in the [Department] of any particular power should ordinarily
be resolved against its exercise of the power.” Piedmont &
Northern Ry. Co. v. Scott, 202 S.C. 207, 24 S.E.2d 353, 360 (1943). Further,
any action taken by the Department outside of its statutory and regulatory
authority is null and void. Responsible Economic Development at 553,
641 S.E.2d at 428.
The
legislature has already exempted attorneys at law from regulation under the
provisions of the Act when acting in the regular course of their profession; it
did not delegate authority to “grant” or “deny” exemptions to the Department. See Gilstrap v. Budget and Control Bd., 310 S.C. 210, 216, 423 S.E.2d 101,
105 (1992) (“A statute which, in effect, gives an administrative body ‘an absolute, unregulated, and undefined discretion’ bestows
arbitrary powers and is an unlawful delegation of legislative powers.”), citing Bauer v. S.C. State Housing Authority,
271 S.C. 219, 246 S.E.2d 869 (1978). (Emphasis added.) Further, regulatory
agencies are not permitted to regulate attorney conduct. See American
Bar Association v. Federal Trade Commission, 430 F.3d 457 (D.C. Cir. 2005)
(holding that even though no language in the statute specifically exempted
attorneys from the regulation, attorneys could not be regulated by the
agency).
By
its plain and unambiguous terms, Section 37-7-101(2)(b)(i) exempts attorneys at
law, when acting in the regular course of their profession, from the definition
of “credit counseling organization” and thereby exempts Lexington Law from
application of the Act. When a statute provides an exemption in plain and
unambiguous terms, the extent of the exemption is not left for debate.
Legislative intent is exemplified by a plain reading of the statute. See City of Rock Hill v. Pub. Serv. Comm’n of South Carolina, 299 S.C. 95,
382 S.E.2d 888 (1989).
In TNS Mills, Inc. v. S.C. Dep’t of Revenue, 331 S.C. 611, 624, 503 S.E.2d
471, 478 (1998), the South Carolina Supreme Court relied upon Section 12-4-730
to hold that a taxpayer was not entitled to an exemption because it failed to
apply for the exemption by the deadline stated in the statute. While TNS deals with the arena of tax law, the analysis the Supreme Court used is instructive
in this case. Here, the statute does not require Lexington Law to apply for an
exemption and the statute does not give the Department the authority to grant
exemptions. Because the plain language of the statute is clear, and because no
application for an exemption is required to be made by attorneys at law, I
conclude that Lexington Law is automatically granted the statutory exemption under
Section 37-7-101(2)(b)(i) and the Department has no authority over it. See id. at 620, 503 S.E.2d at 476; see also City
of Rock Hill, supra.
Lexington Law Does Not
Fall Under the Jurisdiction of the Act
Based
upon the discussion above, it is clear that the General Assembly has already
granted a statutory exemption to Lexington Law as attorneys at law. Therefore,
Lexington Law is exempt from regulation by the Department under the Act. While
the Department possesses the authority to implement the Act, that authority
does not extend to those exempt from the Act. Rather, the Department has the
authority to regulate the overall practice of credit counseling in South Carolina and the authority to take action against organizations which are not exempt from the Act.
This
is so because the use of terms in a statute must be given effect. “With any
question regarding statutory construction and application, the court must
always look first to the legislative intent as determined from the plain
language of the statute.” State v. Frey, 362 S.C. 511, 516, 608 S.E.2d
874, 877 (Ct. App. 2005), citing State v. Scott, 351 S.C. 584,
588, 571 S.E.2d 700, 702 (2002); State v. Morgan, 352 S.C. 359, 365-66,
574 S.E.2d 203, 206 (Ct. App. 2002). The intent of the legislature as
expressed in the statute is controlling. Statutes “must receive [a] practical,
reasonable, and fair interpretation consonant with the purpose, design, and
policy of lawmakers.” Father v. S.C. Dep’t of Soc. Servs., 345 S.C. 57,
65, 545 S.E.2d 523, 527 (Ct. App. 2001) (citations omitted).
In
construing what the legislature intended with reference to the Department’s
authority under the Act, it is necessary to consider the Act as a whole.
Clearly, the legislature has determined that its obligations to protect the
public permit it to provide a regulatory framework to license persons to engage
in credit counseling who are not already subject to regulation for the services
they are performing. If Lexington Law is deemed to be practicing law in the
state of South Carolina, its activities would clearly not be within the
Department’s jurisdiction.
To
the extent that the activities of Lexington Law constitute practicing law in
the state of South Carolina, its activities are regulated by the South Carolina
Supreme Court and subject to the disciplinary authorities of the Court. “A
lawyer shall be subject to the Rules of Professional Conduct with respect to
the provision of law related services….” Rule 5.7(a): Responsibilities
Regarding Law-Related Services, Rule 407, Rules of Professional Conduct,
Rule 407, SCACR. “The term ‘law related services’ denotes services that might
reasonably be performed in conjunction with and in substance are related to the
provision of legal services….” Rule 5.7(b), Rule 407, SCACR. “Examples of law
related services include providing title insurance, financial planning,
accounting, trust services, real estate counseling, legislative lobbying,
economic analysis, social work, psychological counseling, tax preparation, and
patent, medical or environmental consulting.” Comment 9 to Rule 5.7, Rule 407,
SCACR. Thus, even if the credit counseling services provided by Lexington Law
fall outside the traditional definition of the “practice of law,” when such
acts are performed by lawyers, their conduct is subject to the disciplinary
authorities who regulate lawyer conduct generally.
Further,
pursuant to Rule 8.5, Rule 407, SCACR, a lawyer who provides services in the
state of South Carolina is subject to the disciplinary authority of this
jurisdiction. Id. Therefore, to the extent that its activities constitute
practicing law in South Carolina, Lexington Law is subject to regulation by the
South Carolina Supreme Court. Therefore, it is not subject to regulation by the
Department. Indeed, there was no reason for the General Assembly to extend the
authority of the Department over attorneys at law because the Supreme Court
already regulates both the conduct of attorneys and their discipline. The
public is adequately protected by the Supreme Court’s regulation of Lexington
Law as to any activities performed in the State of South Carolina.
ORDER
Based
on the foregoing,
IT
IS HEREBY ORDERED that the Department does not have authority to grant or
deny exemptions under the South Carolina Consumer Credit Counseling Act, S.C.
Code Ann. § 37-7-101 et seq.; and because the legislature has
already provided an exemption to attorneys at law under the Act, Lexington Law
is exempt from application of the Act and not subject to regulation by the
Department; and
IT
IS FURTHER ORDERED that there being no genuine issue of material fact, this
matter is dismissed.
AND
IT IS SO ORDERED.
_____________________________
October 15, 2007 Marvin
F. Kittrell
Columbia, South Carolina Chief
Administrative Law Judge
In its brief to the Court, the Department further argued
that Lexington Law is subject to regulation by the Department as it is a
“creditor” under the Act. The Department cites S.C. Code Ann. §§ 37-1-102(2)(d)
and 37-1-201(7)(c) (2002) in support of its argument. These sections apply to
“consumer credit transactions” which are defined specifically as:
· Consumer Credit Sales pursuant to
§ 37-2-104;
· Consumer loans, or refinancing of
consumer loans, pursuant to § 37-3-104;
· Consumer lease, pursuant to §
37-2-106; or
· Consumer rental-purchase agreement
pursuant to § 37-2-701.
S.C. Code Ann. § 37-1-301(11) (2002).
Section 37-1-102(2)(d) protects consumers from the
misconduct of suppliers of consumer credit (creditors). The definition of
“creditors” as provided in Section 37-1-201(7)(c) and as cited by the
Department is “the person who grants credit in a consumer credit transaction
or…an assignee of a creditor’s right to payment….” S.C. Code Ann. §
37-1-201(7)(c) (2002). The section goes on to clarify that in “in the case of
credit granted pursuant to a credit card, the ‘person who gives credit’ is the
card issuer and not another person honoring the credit card.” Id.
Under a plain reading of this definition, Lexington
Law is not a creditor. Helping consumers in challenging errors on their credit
reports does not make Lexington Law a creditor as the Department asserts. Lexington law, in its representation of clients, does not grant credit or have a right to
payment as contemplated by Section 37-1-201.
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