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Consumer Credit Regulation: 7.7.13 Exhaustion of Administrative Remedies

In a 2005 Texas case, Meekey v. Rick’s Cabaret International, Inc., the defendant argued that the consumers were required to exhaust their administrative remedies.712 The case involved an illegal surcharge in violation of the Texas Finance Code. The defendant argued that the code was part of a pervasive regulatory scheme and that the Texas Finance Commission had either exclusive or primary jurisdiction of the dispute.

Consumer Credit Regulation: 7.8.1 Introduction

The remedies available to victims of illegal overcharges are primarily determined by individual state statutes. Consequently, attorneys who are concerned about the remedies available in an individual overcharge case must first pay close attention to the statute under which the action is brought or the defense raised.718 Remedies for exceeding authorized cost ceilings vary widely from statute to statute, so an earlier case decided under a different statute may have little precedential value.

Consumer Credit Regulation: 7.8.2.2.2 Statutes that void the entire obligation

Although many usury statutes limit usury remedies to a forfeiture of interest, harsher sanctions are also found. Numerous statutes declare usurious obligations to be completely void and prohibit any creditor recovery whether or not the principal has been repaid.759 This sanction is most common in small loan laws and consumer loan laws derived from them.

Consumer Credit Regulation: 7.8.2.3.1 Introduction

A critical question that often arises when a loan is declared usurious is: what happens to the money already paid to the creditor? The answer will depend partly on whether the statute voids the entire obligation or merely the interest.

Consumer Credit Regulation: 7.8.2.3.2 Statutes allowing recovery

Some statutes that declare usurious loans to be completely void spell out the debtor’s right to recover payments made, in which case the problem is solved.766 For example, some versions of the uniform small loan act have denied the creditor the right to “retain” payments, so a refund is obviously required.767 Small loan acts which declare usurious loans void and deny the creditor’s right to “collect or receive” any charges on the contract have generally been interpreted as requiring a refund of

Consumer Credit Regulation: 7.8.2.3.4 Common law action for recovery of usurious interest that has been paid

Even in the absence of a statutory cause of action, many states recognize a common law action for the recovery of the usurious portion of interest payments made on a contract.780 Such a claim has particular potential in very high-rate credit such as payday loans, where the finance charges often exceed the principal after a few rollovers. Such an action can be invaluable to debtors if litigation occurs only after most of a loan is paid off because the creditor’s forfeiture of future payments means little at this point.

Consumer Credit Regulation: 7.8.2.5 Attorney Fees

Usury statutes that provide explicit causes of action for consumers often provide for awards of attorney fees if the consumer prevails.802 A fee award is mandatory under the UCCC if the consumer prevails.803 A decision that a loan is usurious may also prevent the creditor from recovering its fees under a contract clause.804

Consumer Credit Regulation: 7.8.3.1 Courts’ Authority to Impose Equitable Remedies

Although most remedies for usury and other overcharges exist under statutes or common law, there are circumstances when a debtor’s appropriate remedy for usury is in equity.805 The most common occasion is when the creditor is attempting to foreclose upon security, often the borrower’s home, given in conjunction with the usurious loan. Borrowers who want to enjoin foreclosures must typically invoke the court’s equitable powers.

Consumer Credit Regulation: 7.8.4.1 Unjust Enrichment

In many cases, it will be advantageous to assert a claim for unjust enrichment in addition, or as the alternative, to a usury claim. The simplicity of an unjust enrichment claim is an advantage even though it does not offer special penalties or fee-shifting.

Consumer Credit Regulation: 7.8.4.2 Money Had and Received

“Money had and received” is a cause of action that arises, where recognized, when “one person obtains money that in equity and good conscience belongs to another.”845 Conceptually, it is an equitable doctrine that encompasses those unjust enrichment claims wherein the benefit retained by the defendant is cash, as opposed to services or some other subject.

Consumer Credit Regulation: 7.8.4.3 Constructive Trust

One advantage of asserting a claim in equity is that a plaintiff entitled to restitution may take the further step of seeking a constructive trust on the funds.855 Not a remedy or a cause of action, nor even a genuine trust, a constructive trust is a legal concept that attaches to the property held unjustly by the defendant, to protect it until it is returned.856 Like unjust enrichment,857 the concept of the constructive trust stems from property b

Consumer Credit Regulation: 7.8.4.4.1 Requirement of no adequate remedy at law

Many jurisdictions require a plaintiff who seeks restitution in equity for unjust enrichment to demonstrate that no adequate remedy at law exists. This is a tenet of the law of equity in general,863 though it may be fading as time passes. Claims for unjust enrichment, restitution, or money had and received based on illegitimate fees have fallen afoul of this rule in some jurisdictions.864

Consumer Credit Regulation: 7.8.4.4.2 Existence of an express contract

An express contract between the parties may also bar a plaintiff from obtaining an equitable remedy like restitution. This is another ancient rule retained by some jurisdictions, apparently on the grounds that plaintiffs who are parties to a contract should be restricted to contract actions at law.870 Courts adhering to this rule may find that any contract between the parties that relates to the substance underlying the collected charge will bar any unjust enrichment action to recover it.

Consumer Credit Regulation: 7.8.4.4.3 The voluntary payment defense

A third obstacle to an equitable action for unjust enrichment is the voluntary payment defense. Many jurisdictions recognize this defense to an action for restitution of funds paid, whether framed as an action in equity or one at law for breach of contract.878 Where recognized, the defense almost completely eradicates the equitable claim.

Consumer Credit Regulation: 5.8.7.1.5 Bankruptcy law

Bankruptcy law is an overlay upon federal and state rebate law. Section 502(b) of the Bankruptcy Code requires the bankruptcy court to determine the amount of each claim filed by a creditor that will be allowed.

Consumer Credit Regulation: 5.8.7.1.6 State rebate law

For transactions consummated prior to the effective date of these federal statutes, and for transactions not subject to them, the appropriate rebate formula remains a matter of state law491 or a matter of contract law, in the absence of applicable state law.492 State credit statutes often authorize the use of the Rule of 78s, also known as the “sum of the digits” formula, because it maximizes the amount of interest and other charges that the creditor can claim to be earned, and can therefore exc

Consumer Credit Regulation: 5.8.7.2 Pro Rata Rebates

The simplest but least used rebate formula is the pro rata method. This formula assumes that interest is earned in direct proportion to the time that a loan or credit has been outstanding. If a prepayment occurs four months into the term of a precomputed loan that was scheduled to be repaid in twelve months, the pro rata method provides that 4/12 of the interest has been earned. Consequently, the remaining 8/12 of the interest is unearned and must be rebated.