ORDERS:
ORDER
This matter is before the Administrative Law Court pursuant to the request of the Petitioner, South Carolina Department of Consumer Affairs (Department), for injunctive relief. The Department seeks to compel the Respondent, Neighborhood Assistance Corporation of America (NACA), to comply with the Department’s subpoena issued August 26, 2009. The subpoena, issued pursuant to the Department’s authority to investigate entities providing consumer credit counseling services, request that NACA produce a number of documents related to NACA’s provision of mortgage restructuring services to South Carolina consumers. After NACA failed to produce the requested documents, the Department filed a Motion for an Order Compelling Compliance with this Court on September 29, 2009. NACA responded by filing a memorandum in opposition to the motion, a Motion to Quash the subpoena and a Motion for Protective Order. A hearing on the Motions was held on February 3, 2010, and post-hearing briefs were thereafter submitted by both parties. Upon careful consideration of the arguments and the memoranda submitted by the parties, I find that the Department’s Motion to Compel Compliance should be granted and that NACA’s Motion to Quash and Motion for Protective Order should be denied.
BACKGROUND
NACA is a nonprofit organization which is licensed as a mortgage broker in the State of South Carolina. It offers fixed rate mortgages at below market rates to lower income borrowers who might not ordinarily qualify for a loan. In addition, NACA has developed a touring program entitled “Save the Dream.” Pursuant to this program, NACA representatives travel to different states and offer mortgage restructuring services—the renegotiation of a homeowner’s existing mortgage at more favorable terms—to homeowners who are in financial difficulty and facing foreclosure. In March of 2009, NACA held a “Save the Dream” event in Columbia, South Carolina, at the request of U.S. Representative James Clyburn. NACA did not originate its own loans during this event, but instead negotiated more favorable terms (either a reduction in the interest rate or in the principal amount of the mortgage) with the homeowners’ existing lenders.
The Department is the agency of the State of South Carolina which regulates the activities of credit counseling services in the State through the administration and enforcement of the South Carolina Consumer Protection Code, S.C. Code Ann. §§ 37-1-101 et seq., of which the Consumer Credit Counseling Act is a part. The Department also administers and enforces the Licensing Requirements Act of Certain Brokers of Mortgages on Residential Real Property (“Mortgage Broker Act”), S.C. Code Ann. §§ 40-58-10 et seq., which deals with the activities of mortgage brokers in South Carolina.
In April of 2008, the Department notified NACA of a complaint it had received from a consumer, requested information about NACA’s dues and membership requirements, and further advised NACA of the requirements of the Credit Counseling Act. NACA responded to that inquiry. In March of 2009, the Department learned of NACA’s “Save the Dream” event in Columbia and became concerned that NACA may have been providing credit counseling services to South Carolina consumers without being licensed. By letter dated March 11, 2009, the Department requested information from NACA concerning the event so that it could make a determination whether NACA had committed any violations of South Carolina law. From March through July of 2009, the Department and NACA exchanged correspondence and NACA submitted a partial response to the Department’s requests for information. When the Department was unable to obtain all the information it had requested, it issued a subpoena to NACA on August 26, 2009. Among the items requested were “[a]ny documents regarding funding, to include fees, compensation or gain received or expected to be received by NACA for the provision of foreclosure counseling services, to include mortgage modification/restructuring services, to South Carolina consumers” and “[a] listing containing the names and addresses of all South Carolina consumers who sought and/or received mortgage modification/restructuring services from NACA. . . .” The subpoena established a September 11, 2009 deadline for submission of the requested documents. NACA requested an explanation of the Department’s “probable cause” for issuance of the subpoena on September 1, 2009, and the Department sent a letter to NACA detailing its basis for requesting the information on September 4, 2009. When NACA did not produce the requested documents, the Department filed the instant Motion for an Order Compelling Compliance pursuant to S.C. Code Ann. § 37-6-106(3) (Supp. 2009).
DISCUSSION
S.C. Code Ann. § 37-7-102 (Supp. 2009) provides that “[a] person may not engage in credit counseling services in South Carolina, whether or not the person has any office, facility, agent, or other physical presence in South Carolina, unless the person obtains from the department a license issued pursuant to this chapter.” “Credit counseling service” is defined as, among other things, “negotiating or offering to negotiate to defer or reduce a consumer’s obligations with respect to credit extended by others.” S.C. Code Ann. § 37-7-101(3) (Supp. 2009). Section 37-7-101(2) provides that a “credit counseling organization” is “a person providing or offering to provide to consumers credit counseling services for a fee, compensation, or gain, or in the expectation of a fee, compensation, or gain….” However, this term does not include “mortgage brokers. . . licensed pursuant to Title 40” when acting in the regular course of their business. S.C. Code Ann. § 37-7-101(2)(b)(viii) (Supp. 2009).
The Department contends that NACA’s mortgage restructuring activities conducted within the State of South Carolina may constitute “credit counseling services” as defined in the Act, since those activities involve the negotiation of consumers’ existing obligations with respect to mortgages not originated by NACA. It therefore issued the subpoena in this case under the authority of S.C. Code Ann. § 37-6-106(1) (2002), which provides:
If the Administrator [of the Department] has probable cause to believe that a person has engaged in an act which is subject to action by the Administrator, he may make an investigation to determine if the act has been committed, and, to the extent necessary for this purpose, may administer oaths of affirmations, and, upon his on motion or upon request of any party, may subpoena witnesses, compel their attendance, adduce evidence, and require the production of any matter which is relevant to the investigation, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of relevant facts, or any other matter reasonably calculated to lead to the discovery of admissible evidence.
NACA moves to quash the subpoena for a number of reasons. First, NACA argues that as a mortgage broker licensed in South Carolina, it is automatically exempt from the licensing requirements of the Credit Counseling Act pursuant to section 37-7-101(2)(b). However, the South Carolina Supreme Court recently addressed the issue of exemptions from the Credit Counseling Act in Lexington Law Firm v. S.C. Dep’t of Consumer Affairs, 382 S.C. 580, 677 S.E.2d 591 (2009). In Lexington, a law firm based in Utah sought a declaratory judgment in the Administrative Law Court that the Department lacked authority to issue exemptions and that its status as “attorneys at law” entitled the firm to an exemption from the requirements of the Credit Counseling Act under Section 37-7-101(2)(b). The ALC granted summary judgment to the law firm, finding that the Department did not have authority to grant or deny exemptions under the Credit Counseling Act, and that the law firm was entitled to the statutory exemption. The Supreme Court reversed. The Court noted that the statute provides a two-step test to determine if a business is exempt: the business must qualify as one of the exempt categories and must be acting in the regular course of its business. Id. at 586, 677 S.E.2d at 594. The Court further stated: “[A]s the Department is charged by the Legislature with issuing licenses and is in the best position to implement the statutory test, we hold the Department is authorized to determine if a party is exempt from obtaining a license.” Id. Moreover, the Court found that the Utah law firm was not entitled to the “attorneys at law” exemption as a matter of law—none of its attorneys were licensed to practice in South Carolina, thus their activities could not under any circumstances be a part of the “regular course” of their business as attorneys. Notably, although the Court stated that the General Assembly intended to exempt professions and businesses that are otherwise regulated by the State from the aegis of the Credit Counseling Act, it made no determination that the law firm would have been entitled to the exemption as a matter of law if one or more of its attorneys had been licensed in South Carolina. Instead, the Court noted: “If a statutorily enumerated business provides credit counseling services not in the regular course of its business, the exemption is unavailable.” Id. at 588, 677 S.E.2d at 595.
Thus, the fact that NACA is a “statutorily enumerated business”—a licensed mortgage broker in South Carolina—does not automatically exclude it from the requirements of the Credit Counseling Act. Rather, a factual and legal determination must be made that it is acting in the regular course of its business as a mortgage broker when it provides mortgage restructuring services. Moreover, “[t]he Department has authority over licensing under the Act, and that authority encompasses the initial determination, subject to judicial review, of whether a credit counseling organization satisfies a statutory exemption.” Lexington Law Firm, 382 S.C. at 585, 677 S.E.2d at 593. In order to make that initial determination, the Department is not required to accept NACA’s characterization of its business activities at face value, but is authorized to conduct its own investigations and issue subpoenas pursuant to Section 37-6-106(1). Once the Department completes its investigation, it will make a determination whether NACA acted in accordance with South Carolina law. That determination will be subject to full de novo contested case review by this Court pursuant to Section 37-6-108. I thus find that the subpoena was properly issued by the Department according to its statutory authority, and at this preliminary stage of the investigation, NACA is required to comply.
NACA also contends that the Department did not have “probable cause” to believe that it was engaging in activities which are subject to action by the Department under the Credit Counseling Act. Thus, NACA argues that the Department did not properly exercise its authority under Section 37-6-106(1) in issuing the subpoena.
“Probable cause” in the administrative context is different from probable cause in the criminal context; in administrative proceedings, probable cause “only measures the reasonableness of the inspection against proper legislative or administrative standards.” 2 Am. Jur. 2d Administrative Law § 134 (1994). Courts will ordinarily enforce administrative agency subpoenas if the agency’s investigation is statutorily authorized, the information sought by the subpoena is relevant to the investigation, and the demand is not indefinite or overbroad. See, e.g., Lubin v. Agora, Inc., 882 A.2d 833 (Md. 2005); J. T. Hines, Inc. v. State ex rel. Beyer, 12 P.3d 897 (Kan. App. 2000); Eddie’s Leaf Spring Shop and Towing LLC v. Colo. Pub. Utilities Com’n of State, 218 P.3d 326 (Colo. 2009). In this case, the Department undoubtedly has the statutory authority to regulate and to investigate the businesses of mortgage brokers and credit counseling organizations under the Mortgage Broker Act and the Credit Counseling Act. See S.C. Code Ann. §§ 37-6-106(1) (2002), 40-58-65 (Supp. 2009) (Department may examine the books and records of mortgage brokers to determine whether broker is in compliance with Mortgage Broker Act). Furthermore, the correspondence exchanged between NACA and the Department, as well as items gathered by the Department during its inquiry, provide the Department with probable cause to investigate whether NACA’s mortgage restructuring activities in conjunction with the “Save the Dream” event may have been outside the scope of the business of a mortgage broker and within the purview of the Credit Counseling Act. For example, the flyers NACA mailed to South Carolina consumers states that NACA restructures mortgages by negotiating with lenders and servicers to reduce interest rates and/or mortgage balances. See Department’s Exhibit I. This type of activity constitutes “negotiating or offering to negotiate to defer or reduce a consumer’s obligations with respect to credit extended by others,” as set forth in Section 37-7-101(3), and thus on its face appears to be within the scope of the Credit Counseling Act. Therefore, the information the Department seeks, which relates only to NACA’s activities within the State of South Carolina and its provision of services to consumers in the State of South Carolina, particularly with respect to the “Save the Dream” event held in Columbia, is relevant to its investigation at this preliminary stage of the proceedings, and is not indefinite or overbroad.
Finally, NACA argues that compliance with the Department’s subpoena requires the production of confidential and proprietary information and would result both in harm to NACA’s business and the violation of the privacy rights of the consumers it serves. The Court notes that the Department is required to protect consumers’ personal identification information pursuant to the Family Privacy Protection Act of 2002, S.C. Code Ann. § 30-2-10 et seq. (2007) and the Personal Identifying Information Privacy Protection Act, S.C. Code Ann. § 30-2-300 et seq. (Supp. 2009). Further, the Department has represented to this Court and to NACA via a letter dated July 15, 2009, that it routinely withholds such information from its responses to Freedom of Information Act requests, and that it will notify NACA in the event it receives a FOIA request concerning the information sought in the subpoena after the close of its investigation. Accordingly, I find that the information is subject to adequate safeguards and a protective order is unnecessary. See 73 C.J.S. Public Administrative Law and Procedure § 159 (2009) (in enforcing an administrative subpoena, the court has the discretion to provide additional confidentiality protections when it concludes the agency has not provided safeguards sufficient to protect the interests of those at risk).
ORDER
For all the foregoing reasons, I find that NACA is required to comply with the Department’s subpoena issued August 26, 2009. Accordingly, it is hereby
ORDERED that the Department’s Motion for Order Compelling Compliance is hereby GRANTED. NACA must provide the information and documents sought in the Department’s subpoena within thirty (30) days of receipt of this Order. It is furthermore
ORDERED that NACA’s Motions to Quash and for a Protective Order are hereby DENITED.
AND IT IS SO ORDERED.
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Ralph King Anderson, III
Chief Administrative Law Judge
May 18, 2010
Columbia, South Carolina
CERTIFICATE OF SERVICE
I, Amanda M. Scott, hereby certify that I have this date served this Order upon all parties to this cause by depositing a copy hereof, in the United States mail, postage paid, in the Interagency Mail Service, or by electronic mail to the address provided by the party(ies) and/or their attorney(s).
____________________________________
Amanda M. Scott
Judicial Law Clerk
May 18, 2010
Columbia, South Carolina
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