AARON NELSON V ASSOCIATES FINANCIAL SERVICES CO OF INDIANA INC
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STATE OF MICHIGAN
COURT OF APPEALS
AARON NELSON and CHARLES GALASKE,
FOR PUBLICATION
October 29, 2002
9:10 a.m.
Plaintiffs-Appellees,
v
No. 227375
Berrien Circuit Court
ASSOCIATES FINANCIAL SERVICES
COMPANY OF INDIANA, INC.,
Defendant-Appellant.
Updated Copy
January 31, 2003
Before: Meter, P.J., and Markey and Owens, JJ.
MARKEY, J.
Defendant appeals by leave granted the trial court's order denying defendant's motion for
summary disposition on count IV of plaintiff Charles Galaske's first amended complaint. We
affirm.
I. FACTS AND PROCEDURAL HISTORY
This case involves defendant's practice of charging its customers a mortgage prepayment
penalty "in an amount equal to six months interest on the amount prepaid in excess of 20% of the
original balance" when "an amount in excess of 20% of the original principal balance is prepaid
in any twelve-month period within five years of the loan date." According to plaintiffs' first
amended complaint, plaintiffs entered into separate loan agreements with defendant, and each
plaintiff secured the loan with a first mortgage on a parcel of real property. Each loan agreement
contained the following provision governing prepayment of the principal balance:
If I prepay early, no part of the loan fee will be refunded to me. Further, if
real estate is given as security for this loan, and if an amount in excess of 20% of
the original principal balance is prepaid in any twelve-month period within five
years of the loan date, I agree to a prepayment penalty in an amount equal to six
months interest on the amount prepaid in excess of 20% of the original balance.
Less than five years after executing these loan agreements, plaintiffs decided to prepay
their respective mortgages and requested prepayment "payoff confirmations" from defendant. In
each respective prepayment statement, defendant itemized the amount of the prepayment penalty
to be paid under the terms of the mortgage agreement. Each plaintiff paid the prepayment
penalty fee in addition to the principal due.
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Subsequently, plaintiffs commenced the instant lawsuit on behalf of themselves and as
representatives of a class of defendant's customers who paid prepayment penalties in excess of
one percent of the amount of the prepayment after the first three years of the loan had passed. In
their first amended complaint, plaintiffs alleged in count I that defendant violated MCL
438.31c(2)(c) by charging a prepayment penalty in excess of one percent of the amount of any
prepayment on a first lien mortgage loan and/or more than three years from the date of the loan.
Plaintiffs also alleged in counts II and III that defendant is not licensed or registered with the
Financial Institutions Bureau of the Michigan Department of Commerce as required by the
Michigan Mortgage Brokers, Lenders, and Servicers Licensing Act, MCL 445.1651 et seq., and
the Consumer Financial Services Act, MCL 487.2051 et seq., and that defendant's prepayment
penalty charge violates these acts. In count IV, plaintiffs further alleged that the inclusion of the
prepayment provisions in the loan agreements executed between the parties and the collection of
the prepayment penalties pursuant to those provisions constitute unfair trade practices and are
unlawful under the Michigan Consumer Protection Act (MCPA), MCL 445.901 et seq. Plaintiffs
alleged that the prepayment penalty at issue is an unfair trade practice because it falls under the
description of three particular unfair trade practices listed in the MCPA, specifically MCL
445.903(1)(n), (t), and (z).
In lieu of answering their complaint, defendant removed the case to federal district court,
alleging federal questions, i.e., federal preemption and diversity jurisdiction. Nelson v Assoc Fin
Servs Co of Indiana, Inc, 79 F Supp 2d 813, 815 (WD Mich, 2000). The federal district court
remanded the case to the Berrien Circuit Court after concluding that defendant's preemption
argument was insufficient to invoke federal question jurisdiction and that the court lacked
diversity jurisdiction. Id. at 821.
On remand to the circuit court, defendant moved for summary disposition pursuant to
MCR 2.116(C)(7) regarding plaintiff Aaron Nelson's complaint on the basis of a prior agreement
to arbitrate. Defendant also moved for summary disposition of counts I and IV of plaintiff
Galaske's complaint on the grounds that the Michigan usury statute was preempted by § 501 of
the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA), 12 USC
17435f-7a (MCR 2.116[C][4]), that plaintiff Galaske had waived the only remedy available
under the usury statute by voluntarily paying the penalty (MCR 2.116[C][7]), and that
Michigan's usury statute does not create a cause of action for the alleged illegal prepayment
penalties (MCR 2.116[C][8]).
Plaintiffs claimed that defendant's argument recognized that prepayment penalties are not
interest and therefore not preempted by federal law. Plaintiffs further argued that even if they
had waived the right to directly assert defendant's violation of MCL 438.31c(2)(c) by paying the
penalty, they could still assert their claim under the MCPA.
The court agreed with plaintiffs and denied defendant's motion for summary disposition
with respect to count IV (plaintiff Galaske's MCPA claim), reasoning in part:
Defendant Associate [sic] asserts that it is entitled to summary disposition
of counts one and four basically for three reasons, three grounds. The first, it
claims that it is entitled to summary disposition because this was not a (C)(2)(c)
loan under 438.31(C). The Court finds that the Defendant's argument in this
regard is strained, illogical, and does not comport with the statute as a whole
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which was—which is a remedial statute and it seeks to protect borrows—
borrowers, specifically borrowers who have mortgaged their real property, their
residential dwellings by adding these additional protections.
I believe that the section of the statute that applies to this case is 31(C), not
the general usury statute, 31. Therefore, the Court cannot use that as a basis for
granting the motion for summary disposition.
With regard to the second argument, it wasn't argued too much today, but
Associates argues in its brief that this area was preempted by the Federal
Depository Institutions Deregulation and Monitory [sic] Control Act of 1980, 12
USC 1735(F)-(7)(a), which indicates according to citing the Shaunt (ph) case that
this Court does not have subject matter jurisdiction. The Court finds that this
Court does in fact have subject matter jurisdiction. As stated in 12 CFR 590.3(C),
which are the regulations authorized by 12 USC 1735(F)(7)(a) and (7)(f):
"Nothing in this section preempts limitation in state laws on prepayment
charges or other provisions designed to protect borrowers."
So the statute in question, the Michigan usury statute, is a statute designed
to protect borrowers. Therefore this Court does have subject matter jurisdiction,
and the motion for summary disposition cannot be granted on that ground.
* * *
With regard to the count four complaint, however, the Court agrees with
the Plaintiffs that a violation of the Michigan usury statute can in fact provide the
foundation for violation of the Michigan Consumer Protection Act. And the
Court finds that it must deny the motion for summary disposition with regard to
count four of the complaint.
The court further noted that because defendant's motion was brought and decided under
MCR 2.116(C)(8), it was premature to find whether as a matter of fact defendant engaged in any
unfair trade practice. The court found, however, "that the Plaintiffs have stated a cause of action
for such and the Defendants [sic] will have to file an answer to that count, and the case will go
from there."
But, regarding count I of plaintiff Galaske's complaint (using MCL 438.31c as a sword),
the court granted summary disposition to defendant finding that plaintiff Galaske's voluntary
payment of the prepayment penalty constituted a waiver of any right to a remedy under the usury
statute. The court further granted summary disposition in favor of defendant with regard to
plaintiff Nelson's complaint and directed that his claims be submitted to arbitration. Thereafter,
defendant filed an application for leave to appeal, which this Court granted.
II. ANALYSIS
A. MCL 438.31c
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Defendant argues that MCL 438.31c(2)(c) does not independently limit prepayment
penalties on first mortgage loans; rather, it is only one of five criteria necessary to trigger MCL
438.31c(2), an exception to the main usury limits of seven percent or less found in MCL 438.31.
Defendant reads MCL 438.31c(2) and MCL 438.31c(5) together and asserts that the five criteria
are: (1) the mortgage loan bears a fixed rate of interest, MCL 438.31c(2); (2) the lender does not
require that the borrower maintain a deposit account, MCL 438.31c(2)(a); (3) the lender does not
require payment of discounts or points not authorized by federal law, MCL 438.31c(2)(b); (4) the
lender does not charge a prepayment penalty contrary to MCL 438.31c(2)(c); and (5) the lender
is approved as a mortgagee under state or federal law, MCL 438.31c(5). Defendant asserts that
when one or more of these criteria are not satisfied, MCL 438.31c(2) does not apply and either
the seven percent limit of MCL 438.31 or the eleven percent limit of MCL 438.31c(2)(7) would
apply. We conclude that the circuit court correctly found that MCL 438.31c(2)(c) is applicable
to plaintiff Galaske's loan from defendant and that defendant's strained construction of the statute
must be rejected as contrary to the intent of the Legislature.
A trial court's grant or denial of summary disposition is reviewed de novo on appeal.
Spiek v Dep't of Transp, 456 Mich 331, 337; 572 NW2d 201 (1998). Statutory interpretation and
the issue of federal preemption are both questions of law reviewed de novo on appeal. Oakland
Co Bd of Rd Comm'rs v Michigan Prop & Cas Guar Ass'n, 456 Mich 590, 610; 575 NW2d 751
(1998); Konynenbelt v Flagstar Bank, FSB, 242 Mich App 21, 27; 617 NW2d 706 (2000).
At issue in this case is the construction of and interplay between MCL 438.31 and MCL
438.31c.
MCL 438.31 provides in pertinent part:
The interest of money shall be at the rate of $5.00 upon $100.00 for a year,
and at the same rate for a greater or less sum, and for a longer or shorter time,
except that in all cases it shall be lawful for the parties to stipulate in writing for
the payment of any rate of interest, not exceeding 7% per annum. This act shall
not apply to the rate of interest on any note, bond or other evidence of
indebtedness issued by any corporation, association or person, the issue and rate
of interest of which have been expressly authorized by the public service
commission or the securities bureau of the department of commerce, or is
regulated by any other law of this state, or of the United States, nor shall it apply
to any time price differential which may be charged upon sales of goods or
services on credit. [Emphasis added.]
MCL 438.31c provides in pertinent part:
(2) The parties to a note, bond, or other evidence of indebtedness,
executed after August 11, 1969, the bona fide primary security for which is a first
lien against real property, or a land lease if the tenant owns a majority interest in
the improvements, or the parties to a land contract, may agree in writing for the
payment of any rate of interest, but the note, mortgage, contract, or other evidence
of indebtedness shall not provide that the rate of interest initially effective may be
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increased for any reason. In connection with the transaction, except a loan,
insured or guaranteed by the federal government or any agency of the federal
government, if the security is a single family dwelling unit, the lender shall not do
any of the following:
* * *
(c) Charge a prepayment fee or penalty in excess of 1% of the amount of
any prepayment made within 3 years of the date of the loan, or any prepayment
fee or penalty at all thereafter, or prohibit prepayment at any time.
(3) Subsection (2) shall not impair the validity of a transaction or rate of
interest lawful without regard to subsection (2).
(4) Subsection (2) shall not authorize or permit a rate of interest in excess
of the rate set forth in Act No. 259 of the Public Acts of 1968, being sections
438.41 to 438.42 of the Michigan Compiled Laws.
(5) The provisions of subsection (2) shall apply only to loans made by
lenders approved as a mortgagee under the national housing act, chapter 847, 48
Stat. 1246, or regulated by the state or by a federal agency, who are authorized by
state or federal law to make such loans. [Emphasis added.]
The primary goal in construing a statute is to ascertain and effectuate the intent of the
Legislature. In re MCI Telecomms Complaint, 460 Mich 396, 411; 596 NW2d 164 (1999). The
first step in determining the intent of the Legislature is to review the specific wording of the
statute itself. Id. Where the plain and ordinary meaning of the language of the statute is clear
and unambiguous, judicial construction is neither required nor permitted. Id. As far as possible,
effect should be given to every phrase, clause, and word, Sun Valley Foods Co v Ward, 460 Mich
230, 237; 596 NW2d 119 (1999), but parts of a statute must be read in the context of the entire
statute so as to produce a harmonious whole, Macomb Co Prosecutor v Murphy, 464 Mich 149,
159; 627 NW2d 247 (2001). Where it is necessary to construe a statute, the language should be
construed reasonably to give effect to the intent of the Legislature. Draprop Corp v Ann Arbor,
247 Mich App 410, 415; 636 NW2d 787 (2001). Thus, the court must consider the object of the
statute, the harm it is designed to remedy, and apply a reasonable construction that best
accomplishes the purpose of the statute. Marquis v Hartford Accident & Indemnity (After
Remand), 444 Mich 638, 644; 513 NW2d 799 (1994).
A statute is remedial if it is designed to correct an existing oversight in the law, redress an
existing grievance, introduce regulations conducive to the public good, or is intended to reform
or extend existing rights. Tobin v Providence Hosp, 244 Mich App 626, 665; 624 NW2d 548
(2001), quoting Rookledge v Garwood, 340 Mich 444, 453; 65 NW2d 785 (1954). Remedial
statutes are to be liberally construed in favor of the persons intended to be benefited. Dudewicz v
Norris Schmid, Inc, 443 Mich 68, 77; 503 NW2d 645 (1993).
MCL 438.31c(2) is plainly designed to facilitate the purchase of residential property by
allowing market forces to establish the interest rate for loans enabling the purchase of such
property. At the same time, the evident intent of the Legislature was to protect borrowers, "if the
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security is a single family dwelling unit," from being "locked in" to high interest rates by
excessive prepayment penalties. Thus, the statute is designed to introduce regulations conducive
to the public good, and is remedial legislation, Tobin, supra at 665, quoting Rookledge, supra,
which is entitled to a liberal construction in favor of the class of persons intended to be benefited,
Dudewicz, supra.
Defendant's effort to create an ambiguity by arguing that the statute's proscriptions are
criteria for its application fails because an ambiguity does not exist. As the trial court noted,
defendant's construction "does violence to the statute" and is contrary to the evident intent of the
Legislature to assist and to protect mortgagors of single-family dwellings. The plain language of
the statute provides that its application depends on the identification of the lender, not on the
terms of its contracts and on what the loan security is. Thus, by the Legislature's plain words,
subsection 2 of § 31c "shall apply only to loans made by lenders … regulated by the state or by a
federal agency," MCL 438.31c(5), and for which "the bona fide primary security . . . [is a] first
lien against real property," MCL 438.31c(2). When these two elements are present, the parties
may agree in writing to any rate of interest less than criminal usury (i.e., twenty-five percent).
MCL 438.31c(4); MCL 438.41. Further, unless the loan is federally insured or guaranteed, "if
the security is a single family dwelling unit," then the prepayment penalty provisions of MCL
438.31c(2)(c) apply.
Defendant's argument that its construction of the statute is correct because otherwise
MCL 438.31c(3) would be rendered meaningless is also without merit. That subsection merely
authorizes a lender and a borrower to enter into another valid loan agreement at a legal interest
rate. That is, where either the lender does not fall within the meaning of MCL 438.31c(5) or
where the primary security is not a first lien on real property, then subsection 2 will not apply
and impair the otherwise lawful "transaction or rate of interest." This construction gives
meaning to subsections 2, 3, and 5, and best accomplishes the statute's purpose so as to produce a
harmonious whole from the context of the entire section. Macomb Co Prosecutor, supra at 159;
Marquis, supra at 644.
We disagree, however, with plaintiffs' contention that subsection 2 would not apply if the
interest rate were less than that specified in MCL 438.31 (i.e., seven percent) even if the
transaction were otherwise within its terms. As plaintiffs note, MCL 438.31 expressly provides
that it applies only when no other state or federal law regulates the interest rate. Thus, if the
lender meets the definition of MCL 438.31c(5) and the bona fide primary security for the loan is
a first lien on real property, then a rate of interest agreed to by the borrower and a lender that is
below seven percent is still "any rate of interest" within the plain language of MCL 438.31c(2).
For the foregoing reasons, the free market interest rate allowed by MCL 438.31c(2)
applies as long as subsections 2, 4, and 5 are satisfied. If these subsections are satisfied, then the
restrictions of subparagraphs 2(a)-(c) apply, provided the security is a single-family dwelling and
the loan is not federally insured or guaranteed.1 The circuit court correctly reached these
conclusions; therefore, it did not err in rejecting defendant's construction of MCL 438.31c.
1
None of plaintiffs' loans were insured by the federal government or any agency thereof.
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B. PREEMPTION
Defendant argues that the Michigan usury statute is preempted by § 501 of the DIDMCA,
which applies to plaintiff Galaske's loan because it is a first lien on residential real property,
made after March 31, 1980, and is a "federally related mortgage loan" described in 12 USC
1735f-5(b) because defendant is a creditor as defined in 15 USC 1602(f) (regularly extends credit
payable in more than four installments and is the person to whom the debt is initially payable).
We disagree and conclude that the trial court did not err in rejecting defendant's preemption
challenge.
Section 501 of the DIDMCA, 12 USC 1735f-7a, provides in relevant part:
(1) The provisions of the constitution or the laws of any State expressly
limiting the rate or amount of interest, discount points, finance charges, or other
charges which may be charged, taken, received, or reserved shall not apply to any
loan, mortgage, credit sale, or advance which is—
(A) secured by a first lien on residential real property [. . .]
(B) made after March 31, 1980; and
(C) described in section 527(b) of the National Housing Act (12 USC
1735f-5(b)).
The parties do not dispute that plaintiff Galaske's loan comes within the definition of §
501 of the DIDMCA, 12 USC 1735f-7a. See, e.g., Shelton v Mut S & L Ass'n, FA, 738 F Supp
1050, 1056-1057 (ED Mich, 1990). Here, plaintiff 's loan is a "federally related loan" because
defendant is a "creditor" as defined in 15 USC 1602(f). Section 501 of the DIDMCA does not
preempt state regulation of prepayment penalty charges, which are not considered interest or
within the finance charge component of a loan. 12 CFR 590.3(c); Grunbeck v Dime Sav Bank of
New York, FSB, 74 F3d 331 (CA 1, 1996); see, also, Konynenbelt, supra at 32-37. However,
defendant does not directly argue that state prepayment penalty limitations are preempted by the
DIDMCA. Instead, defendant relies on its state statutory construction argument that MCL
438.31c(2)(c) does not apply to plaintiff 's loan. Having concluded that the trial court properly
rejected defendant's construction of MCL 438.31c(2)(c), we now address defendant's issue of
federal preemption.
There is no question that "[u]nder the Supremacy Clause of the United States
Constitution, US Const, art VI, cl 2, federal law preempts state law where Congress so intends."
Konynenbelt, supra at 25. In addition, as in § 501 of the DIDMCA, where Congress has
expressly provided that federal law preempts state law, the only question is the extent of that
preemption. Grunbeck, supra at 336. Federal preemption analysis is guided by two
presumptions: first, that under principles of federalism, preemption is narrowly construed and,
second, that the purpose of Congress is "'the ultimate touchstone'" of interpretation of a federal
statute preempting state law. Brown v Investors Mtg Co, 121 F3d 472, 475 (CA 9, 1997),
quoting Medtronic, Inc v Lohr, 518 US 470, 485; 116 S Ct 2240; 135 L Ed 2d 700 (1996); see,
also, Konynenbelt, supra at 35.
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The scope of a federal preemption is determined "'first and foremost, from the language
of the federal statute, employing traditional rules of statutory construction.'" Konynenbelt, supra
at 28, quoting Grunbeck, supra at 336. Thus, for § 501 of the DIDMCA to preempt MCL
438.31c(2)(c), prepayment penalty limitations must come within the meaning of a state law
"expressly limiting the rate or amount of interest, discount points, finance charges, or other
charges." 12 USC 1735f-7a(1).
The issue in Grunbeck, supra at 334-335, was whether the DIDMCA preempted a state
law requiring lenders to charge only simple interest, i.e., prohibited compounding interest on
interest. The court found that under the plain language of § 501 of the DIDMCA, the state
statute in question did not "'expressly' limit the 'rate or amount of interest'" the lender could
charge. Id. at 338, n 6. Nonetheless, the court went on to address the issue as if an ambiguity
existed by examining the congressional history of the DIDMCA, opining that
relevant legislative history clearly reflects a congressional intention to confine the
scope of section 501(a)(1) preemption to state laws which impose express ceilings
on the rate or amount of interest which may be charged, as distinguished from
bans against charging interest on interest or compounding. The legislative aim in
enacting section 501 focused on "state usury ceilings," S Rep No 368, 96th Cong,
2d Sess 18-19, reprinted in 1980 USCCAN 236, 254-55 (emphasis added), with
particular emphasis on state usury laws which restrict interest rates to belowmarket levels and result in artificial disruptions in the supply of home-loan
mortgage funds. [Id. at 339 (emphasis in original).]
The Grunbeck court further noted that Congress did not intend preemption to apply to
prepayment penalties and other limitations designed to protect borrowers, but rather, preemption
applied only to usury limits considered within the "annual percentage rate." The court stated:
Congress also signaled its narrow preemptive intent under section 501(a)(1)
by insulating these mortgage loans from state usury limitations only, and not from
other state-law limitations encompassed within the "annual percentage rate" nor
other state-law limitations designed to protect borrowers:
"In exempting mortgage loans from state usury limitations, the Committee
intends to exempt only those limitations that are included in the annual percentage
rate.
The Committee does not intend to exempt limitations on prepayment
charges, attorney fees, late charges or similar limitations designed to protect
borrowers." 1980 USCCAN at 255 (emphasis added). [Id. at 340 (emphasis
added).]
In Konynenbelt, supra, this Court considered whether the DIDMCA preempted MCL
565.41, which requires that upon satisfaction of a mortgage, a mortgagee "shall file a discharge
thereof with the register of deeds and pay the fee for recording the discharge." Defendant
Flagstar Bank, which customarily charged its mortgagors the $9 recording fee upon satisfaction
of the loan, claimed the fee came within the meaning of "other charges" for which state-law
limitation is preempted by § 501 of the DIDMCA. Konynenbelt, supra at 23, 34. This Court
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disagreed, finding that Congress intended to foster home loans "by assuring the availability of
home loans, albeit at potentially high interest rates," and that
this legislative purpose dealing with interest rates and the availability of home
loans is not affected by plaintiffs' state law claims objecting to Flagstar's practice
of charging the $9 recording fee. As correctly stated by the trial court, the $9
recording fee was not an "up-front cost" and did not affect the interest rates
imposed by Flagstar. The fee has nothing to do with the lending of money and
the availability of home loans because the fee is imposed after the loan has
already been made. Moreover, Congress also indicated its narrow preemptive
intent under the DIDMCA by insulating the first mortgage home loans from state
usury limitations only[.] [Id. at 35.]
The prepayment penalty limitation at issue in this case likewise does not affect the
interest rate that defendant may charge, nor does it hinder the intent of both MCL 438.31c(2) and
§ 501 of the DIDMCA to encourage the availability of mortgage money for residential housing
(by allowing market interest rates to prevail). Rather, it is a regulation designed to protect
borrowers not within the intent of Congress to preempt. Grunbeck, supra at 340; Konynenbelt,
supra at 35.
Moreover, this Court may defer to administrative agency interpretations of statutes within
their responsibility to administer, particularly when such interpretations are consistent with the
legislative history or other persuasive reasoning. Grunbeck, supra at 340-341; Konynenbelt,
supra at 28-29. The Federal Home Loan Bank Board (now the Office of Thrift Supervision) has
adopted regulations implementing § 501 of the DIDMCA, Grunbeck, supra at 341, including 12
CFR 590.3(c), which provides that "[n]othing in this section preempts limitation in state laws on
prepayment charges, attorneys' fees, late charges or other provisions designed to protect
borrowers."
Similarly, the Michigan Financial Institutions Bureau (MFIB), charged with the
responsibility of regulating financial institutions in Michigan, has issued Mortgage Bulletin
1998-01 concluding that the prepayment penalty proscriptions of MCL 438.31c(2)(c) are not
preempted by § 501 of the DIDMCA. The MFIB bulletin provides in part:
Section 501(a)(1) of the Depository Institutions Deregulation and
Monetary Control Act of 1980 does not preempt MCL 438.31c(2)(c). As a result,
lenders who make loans secured by first mortgages on residential property, except
for certain alternative mortgage transactions, are prohibited from charging
Michigan consumers prepayment fees or penalties outside of those allowed by
MCL 438.31c(2)(c). [MFIB Mortgage Bulletin 1998-01, p 1.]
The position of the MFIB is well reasoned, persuasive, and therefore entitled to this
Court's deference. Accordingly, the circuit court did not err by concluding that § 501 of the
DIDMCA does not preempt the limitations on prepayment penalties established by MCL
438.31c(2)(c).
C. MCPA
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Defendant argues that even assuming the MCPA would prohibit a lender from assessing
"unlawful" charges, MCL 438.31c(2)(c) does not independently limit prepayment penalties, but
is merely one of five statutory criteria necessary to fit within MCL 438.31c(2), an exception to
the usury limits that would otherwise apply. Defendant asserts that because the DIDMCA
preempted those limits, defendant's loan agreements are lawful and not in violation of the
MCPA. We conclude that the trial court correctly determined that count IV of plaintiff Galaske's
amended complaint states a claim upon which relief may be granted because it alleges a violation
of the MCPA, MCL 445.901 et seq., premised upon violation of MCL 438.31c(2)(c).
Section 3 of the MCPA, MCL 445.903, declares unlawful, "[u]nfair, unconscionable, or
deceptive methods, acts, or practices in the conduct of trade or commerce." Plaintiff Galaske
alleges that defendant's prepayment penalties in excess of those authorized by MCL
438.31c(2)(c) meet the definitions of such practices found in subsections n, t, and z of MCL
445.903(1):
(n) Causing a probability of confusion or of misunderstanding as to the
legal rights, obligations, or remedies of a party to a transaction.
(t) Entering into a consumer transaction in which the consumer waives or
purports to waive a right, benefit, or immunity provided by law, unless the waiver
is clearly stated and the consumer has specifically consented to it.
(z) Charging the consumer a price that is grossly in excess of the price at
which similar property or services are sold.
A private person may bring an action for declaratory relief, injunctive relief, and actual
damages or $250, whichever is greater, under § 11 of the MCPA, MCL 445.911. See also Smith
v Globe Life Ins Co, 460 Mich 446, 449, 468; 597 NW2d 28 (1999), which held that a private
person may bring an action under the MCPA for alleged violation of the Insurance Code. Also,
this Court has approved actions under the MCPA where it was alleged that the defendants
induced borrowers to create sham corporations for the purpose of evading usury limitations.
Rutter v Troy Mtg Servicing Co, 145 Mich App 116, 120, 124-125; 377 NW2d 846 (1985);
Allan v M & S Mtg Co, 138 Mich App 28, 42-43; 359 NW2d 238 (1984).
While Rutter, supra, and Allan, supra, are egregious cases of unscrupulous lenders taking
advantage of debtors in dire straits, plaintiff Galaske's allegations in the present case sufficiently
plead a cause a cause of action that raises factual issues. Consequently, one cannot conclude that
plaintiff 's claim is so clearly unenforceable as a matter of law that no factual development could
possibly justify a right of recovery. Maiden v Rozwood, 461 Mich 109, 119; 597 NW2d 817
(1999).
III. CONCLUSIONS
In summary, we conclude that (1) the trial court correctly held that MCL 438.31c(2)(c)
applies to plaintiff Galaske's loan from defendant, (2) the trial court properly concluded that §
501 of the DIDMCA does not preempt the limitations on prepayment penalties established by
MCL 438.31c(2)(c), and (3) the trial court correctly determined that count IV of plaintiff
Galaske's amended complaint states a claim upon which relief may be granted because it alleges
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a violation of the MCPA, MCL 445.901 et seq., premised upon a violation of MCL
438.31c(2)(c).
We affirm.
/s/ Jane E. Markey
/s/ Patrick M. Meter
/s/ Donald S. Owens
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