Jernigan, Bank Commissioner v. Loid Rainwater Co.

Smith, J. On June 10, 1937, appellee filed with, the Securities Division of the State Banking Department an application for a license to operate as a loan broker pursuant to act 135 of the Acts of 1937, p. 167. In denying the application the following finding of fact was made: “Applicant proposed to make loans to borrowers at a rate of interest not to exceed ten per cent, per annum, and in addition thereto the applicant or loan broker will require the borrower to take an insurance policy with the United Mutual Life Insurance Company of Indianapolis, Indiana, an insurance company designated by the loan broker, and for which insurance company the loan broker is agent, adding the amount of the annual premium for the insurance to the loan. The minimum amount of insurance required to be purchased by the borrower is $1,000, regardless of the amount of the loan, and in certain instances the loan broker requires that the borrower execute an additional note for a second annual premium. The loan broker, being the agent for the insurance company, receives the agent’s commission for writing the insurance for the borrower, in addition to the interest charged. The insurance is not written to cover or protect the amount of the loan, or to cover the period of time for which the loan is made, but is merely a requirement made by the loan broker in order that he may receive an amount of money in excess of the ten per cent, interest charged. The borrower is required to pay, in addition to the interest charged, an insurance premium, certain other fees and expenses, such as fee for credit report, inspection and appraisal charges, fee for preparation of papers, and filing fees and expenses in connection with mortgages. “The above requirements with reference to insurance and other expenses are absolute, and the loan broker will not make the loan unless the insurance is purchased by the borrower from the insurance company, and the name of the company being designated in the application for a license to engage in business as a loan broker. The loan broker advertises and represents to the public that lie is in tlie loan brokerage business only, and no thought of insurance is in the mind of the borrower until he arrives at the office of the loan broker. After the borrower has been solicited and calls at the office of the loan broker to secure a loan, he is then notified that he will be required to purchase the insurance before he can secure the loan. The applicant states that he does not advertise, or make any reference to the insurance requirements, before a prospective borrower applies for a loan, because to do so would deter borrowers from applying for loans and would have a detrimental effect on his loan business. ’ ’ Appellee appealed from this order to the circuit court of Pulaski county, where the order denying appellee a license was reversed and the Bank Commissioner was directed to issue a license as prayed, and this appeal is from that order and judgment. The accuracy of the finding above recited does not appear to be questioned. Indeed, it is based upon appellee’s own testimony as to the manner in which he has operated his loan business and proposes to continue. The briefs discuss at length the question whether appellee’s plan results in the exaction of usurious interest. If it did, this, of itself, would justify and fully support the refusal to grant a license; but it is not essential that this finding be made to support the action of the banking department; Section 22 of this act 135, supra, states the grounds upon which a license granted may thereafter be revoked, and among other grounds upon which that action may be taken is that the licensee “. . . is making any charges for any services in connection with any financial transactions covered by this act which services were not actually rendered, or at rates which are exorbitant when considered in connection with the services rendered, or for services not reasonably required in connection with such transaction.” It is apparent that conduct which would justify the revocation of a license to do business would justify the refusal to issue a license in the first instance. The manner of appellee’s operations, as appears from his own records and testimony, is as follows: Only one loan in excess of $500 was made. This was to one Vittilow. He borrowed $526.94, and executed his note for $907.32. There were, altogether, 47 borrowers, who received the aggregate amount of $3,091.81, and gave notes aggregating $6,816.59. One "Wilson borrowed $25, and gave a note for $54.71. One Massey borrowed $25, and gave his note for $61. One Kortke borrowed $20, and gave a note for $49.56. One Shirley borrowed $30, and gave a note for $66.55. No one could borrow any sum of money without taking life insurance for the minimum amount of $1,000. It was not required that any insurance policy be assigned as security for the loan made, and it is obvious that this was not the purpose of taking out the insurance, as the policies bore no just proportion to the sum of money loaned. The examining officer of the banking department was fully justified in concluding that so much of each note as was in excess of the sum loaned was not reasonably required in connection with such transaction, and, if this be true, just reason existed, not only to refuse to issue a license, but to cancel one which had been issued. The inference is fairly deducible that it is not insurance which the borrowers want, but that their need for the small loans made them is such that they accept these loans on any terms that may be imposed. It must be true that many of these borrowers do not want insurance, and are not able to carry it, and they have no intention of doing so beyond the period of time covered by the premium which becomes a part of the notes they signed. This is not a service reasonably required in connection with the transaction, as it furnishes no security for the service rendered and the loan made. It does not appear, from the record before us, what per cent, of the premium which becomes a part of the borrower’s note, belongs to appellee as the agent of the insurance company, but it is shown what sum was borrowed and what premium was charged. For instance, in the case of Kortke he borrowed $20 and gave a note for $49.56, of which amount $27.20 was for the insurance premium. It is a matter of common knowledge that a large, if not the greater, part of this first premium is paid to or retained by the ager.t who writes the insurance. It is argued on behalf of appellee that the insurance is worth what it costs, and that no more is charged these borrowers than is charged others-who take out similar insurance. This may be true, but the fact cannot be disguised that it is not insurance which the borrower wants. His pressing need is for a small loan, which he accepts upon any terms that may be imposed, and it is no service to the borrower to require him to take something he may not want and can ill afford to have, but which he accepts because his necessity permits no alternative. Section 3 of the act 135 requires the Securities Division of the Banking Department to make investigation before granting a license and to issue a license “If such investigation warrants the belief that said business will be operated honestly, fairly, and efficiently, ’ ’ and a bond in proper form is given and approved. Appellee’s honesty is not questioned, nor is his efficiency, but it has been found that his plan of operation is not fair to the hapless borrower with whom he proposes to deal. The act clothed the Securities Division of the Banking Department with a discretion in making this investigation and determination, and the preamble of the act recites the conditions which induced its enactment. It is there recited that “. . . whereas the constitutional inhibition (against exacting usurious interest) has been systematically and consistently flouted by money lenders who have perpetrated the grossest abuses in contracting and collecting small loans from necessitous borrowers whose poverty and need enabled the lender to extort unconscionable rates of interest, . . .” The obvious purpose of this legislation, read in the light of this preamble, was to protect a class of citizens who are unable to protect themselves, and to impose upon a Department of the State Government the duty of determining whether a person proposing to deal with this class would do so fairly. It must 1)0 remembered that tlie duty imposed by law of investigating and determining whether a license should be granted or refused is not imposed upon this court nor upon the learned judge from whose order this appeal comes. He, in the first instance, and we, upon appeal, may review this action to determine whether there has been an arbitrary decision, or an abuse of discretion, but we should regard and uphold the decision of the Securities Division of the State Banking Department unless it be made to appear that there was an abuse of discretion or an arbitrary decision. St. Louis S. W. Ry. Co. v. Stewart, 150 Ark. 586, 235 S. W. 1003; Rural Special School Dist. v. Common School Dist., 183 Ark. 329, 335, 35 S. W. 2d 587; sections 170 and 171, chapter Public Officers, 22 R. C. L. 490; sections 290, 291 and 293, chapter Officers, 42 C. J. 1033. Among the cases cited for the affirmance of the judgment of the court below are those of Cheairs v. McDermott Motor Co., 175 Ark. 1126, 2 S. W. 2d 1111; Hogan v. Thompson, 186 Ark. 497, 54 S. W. 2d 303; and Leavitt v. Marathon Oil Co., 186 Ark. 1077, 57 S. W. 2d 814. But the question involved in each of those cases was whether the loan in question was void as usurious. Here, the intent to exact usury would be a sufficient ground for refusing a license; but it is not the only ground upon which a license may be refused. If it be conceded that the contracts which appellee has made and proposes to make are not void for usury, yet it does not follow that we should reverse a decision of the Securities Division of the State Banking Department. That department is clothed with the duty, under § '22 of act 135 of 1937, of determining whether charges are proposed which are exorbitant when considered in connection with the service rendered or for service not reasonably required in connection with the transaction, and, in view of the facts herein recited, we have concluded that the finding and order of an administrative department which has passed upon this question should not be disturbed. The constitutionality of the act 135 is not questioned, but its constitutionality is fully sustained by the numerous cases cited in the brief of the Bank Commissioner. Tlie judgment of the circuit court, directing the issuance of a license, will, therefore, be reversed, and that order quashed. Griffin Smith, C. J., and Humphreys, J., dissent.