Opinion ID: 2581736
Heading Depth: 3
Heading Rank: 2

Heading: HRS ch. 480

Text: The Kekas next contend that genuine issues of material fact as to whether the Credit Union's conduct violated HRS §§ 480-2 (1993) [11] and 480-12 (1993) [12] precluded the circuit court from entering summary judgment in the Credit Union's favor and against them on Count Three of their counterclaim and the Credit Union's foreclosure action, respectively. In particular, the Kekas rely on the Credit Union loan officer's alleged representations (1) prior to closing, that the Kekas' loan would bear a seven and one-fourth percent interest rate, rather than the nine percent actually charged at closing, and (2) at the time of closing, that it would be no problem to lower the rate when the in house rate changes, which the Credit Union later disavowed. The Kekas characterize the Credit Union's alleged conduct as a bait-and-switch. As a threshold matter, we note that the transaction at issue in the present matter falls within the ambit of HRS ch. 480, inasmuch as (1) a loan extended by a financial institution is activity involving conduct of any trade and commerce and (2) loan borrowers are consumers within the meaning of HRS § 480-1 (1993). [13] The first of these propositions is a consequence of our holding in Cieri v. Leticia Query Realty, Inc., 80 Hawai`i 54, 905 P.2d 29 (1995), in which we construed HRS § 480-2, see supra note 11, to limit claims of unfair or deceptive trade practices, within the purview of HRS chapter 480, to transactions occurring within a business context, id. at 65, 905 P.2d at 40, which, by their very nature, include transactions conducted by a financial institution. See Burnett v. Ala Moana Pawn Shop, 3 F.3d 1261, 1262 (9th Cir.1993) (holding that transactions by pawn shop constituted loans subject to TILA and violated HRS § 480-2); Baird v. Norwest Bank, 255 Mont. 317, 843 P.2d 327, 334 (1992) (holding that Montana Unfair Trade Practices and Consumer Protection Act governed making and collecting consumer loans by banks); Russell v. Fidelity Consumer Discount Co., 72 B.R. 855, 870-72 (Bankr.E.D.Pa.1987) (Pennsylvania Unfair Trade Practices and Consumer Protection law applied to conduct of commercial lender). The second proposition derives from our holding in Cieri that real estate or residences qualify as `personal investments' pursuant to HRS § 480 1; accordingly, the Kekas qualify as `consumers' who `committed money in a personal investment.' Cieri, 80 Hawaii at 69, 905 P.2d at 44. The term bait and switch is usually applied in the context of advertising goods or services with the intent not to sell them as advertised. The practice of modifying proposed terms of a contract as the negotiations proceed is not at all analogous to bait and switch selling. The recognized deceptive practice of bait and switch involves an advertisement and offer of a product which is not bona fide because what the merchant actually has on hand and intends to sell is significantly different from that which drew the potential customer in. The technique, which is essentially a variant of false advertising, involves luring prospective purchasers through the bait of a desirable item, and then talking the customer into or steering him over to a less desirable item, presumably with greater profit margin for the seller. The trick is to lure the prospective sucker and then overwhelm him with glib salesmanship. The essence of this practice is that the seller really has no intention of delivering the product advertised. Goldberg v. Manhattan Ford Lincoln-Mercury, Inc., 129 Misc.2d 123, 492 N.Y.S.2d 318, 322 (N.Y.Sup.Ct.1985) (citations omitted). See also Wyatt v. Union Mortgage Co., 24 Cal.3d 773, 157 Cal.Rptr. 392, 598 P.2d 45, 52 (1979); Tashof v. Federal Trade Comm'n., 437 F.2d 707, 709 n. 3 (D.C.Cir.1970) (citing Guides Against Bait Advertising, 16 C.F.R. § 238); Garcia v. Overland Bond & Inv. Co., 282 Ill.App.3d 486, 218 Ill.Dec. 36, 668 N.E.2d 199, 204 (1996) (bait and switch occurs[, within the meaning of Illinois Consumer Fraud Act,] when a seller makes alluring but insincere offer to sell a product or service that advertiser in truth does not intend or want to sell) (internal quotation signals omitted) (citations omitted); Ford Motor Credit Co. v. Russell, 519 N.W.2d 460, 463 (Minn.Ct.App.1994) (advertising eleven percent interest rate and providing financing to customer at thirteen and three-quarters of percent rate was not bait and switch operation when lender offered eleven percent rate to qualified customers); Brashears v. Sight'N Sound Appliance Centers, Inc., 981 P.2d 1270 (Okla.Civ.App.1999) (Oklahoma Consumer Protection Act expressly prohibits bait and switch advertising); Parrott v. Carr Chevrolet, Inc., 156 Or.App. 257, 965 P.2d 440, 448-49 (1998) (Oregon Unlawful Trade Practices Act expressly prohibits bait and switch transactions, making it unlawful to advertise goods with intent not to provide them as advertised). However, several courts have referred to bait and switch practices in contexts not involving public advertising. See, e.g., S.Q.K.F.C., Inc. v. Bell Atlantic Tricon Leasing Corp., 84 F.3d 629, 634 (2d Cir.1996) (court construed as claim for relief sounding in tort allegations that defendant engaged in bait and switch tactic by luring plaintiff into exclusive negotiations with false promises and making preliminary loan proposals with attractive terms, thereafter changing terms of loan to plaintiff's detriment); Cummings v. Warren Henry Motors, Inc., 648 So.2d 1230, 1233 (Fla.Ct.App.1995) (plaintiff sufficiently stated claim for relief for violation of Florida's Deceptive and Unfair Trade Practices Act by claiming that defendant used bait and switch tactic in representing transaction to be sale and in fact having plaintiff sign lease); Miles Rich Chrysler-Plymouth, Inc. v. Mass, 201 Ga.App. 693, 411 S.E.2d 901, 904-05 (Ga.Ct.App.1991) (jury could find a variation of bait and switch scheme, in violation of Georgia's Fair Business Practices Act, when defendant car dealer led plaintiff to believe that she had ordered vehicle, but no such vehicle had been ordered or available, and defendant subsequently tried to pressure plaintiff into buying more expensive vehicle). As the cases cited supra demonstrate, bait and switch practices are proscribed by consumer protection laws. Inasmuch as the Kekas do not aver that the Credit Union engaged in misleading advertising, but, rather, that it misrepresented the interest rate that would be available to them, the present matter does not involve the classic bait and switch scenario but, instead, a variation on the theme. In any event, the averments in their affidavits and declaration raise the issue whether they were victims of an unfair or deceptive business practice. The phrase unfair or deceptive acts or practices in the conduct of any trade or commerce is not defined in HRS chapter 480. However, HRS § 480-3 ( [1993] ) provides that the chapter shall be construed in accordance with judicial interpretations of similar federal antitrust statutes[,] and HRS § 480-2 is a virtual counterpart of § 5(a)(1) of the Federal Trade Commission Act. Island Tobacco Co. v. R.J. Reynolds Tobacco Co., 63 Haw. 289, 300, 627 P.2d 260, 268 (1981) (footnote omitted). Our supreme court has stated, HRS § 480-2, as its federal counterpart in the FTC Act, was constructed in broad language in order to constitute a flexible tool to stop and prevent fraudulent, unfair or deceptive business practices for the protection of both consumers and honest business[persons]. Ai v. Frank Huff Agency, Ltd., 61 Haw. 607, 616, 607 P.2d 1304, 1311 (1980) (footnote omitted). In Rosa v. Johnston, 3 Haw.App. 420, 651 P.2d 1228 (1982), we adopted the definition set forth in Spiegel, Inc. v. FTC, 540 F.2d 287, 293 (7th Cir.1976), that [a] practice is unfair when it offends established public policy and when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers. Rosa, 3 Haw.App. at 427, 651 P.2d at 1234. The federal cases have defined deception as an act causing, as a natural and probable result, a person to do that which he [or she] would not otherwise do. Bockenstette v. FTC, 134 F.2d 369 (10th Cir.1943). However, the cases indicate that actual deception need not be shown; the capacity to deceive is sufficient. Goodman v. FTC, 244 F.2d 584 (9th Cir.1957). State ex rel. Bronster v. United States Steel Corp., 82 Hawai`i 32, 51, 919 P.2d 294, 313 (1996) (quoting Eastern Star, Inc. v. Union Building Materials Corp., 6 Haw.App. 125, 132-33, 712 P.2d 1148, 1154 (1985)) (some brackets added and some in original) (footnote omitted). The record in the present matter contains very scanty evidence of the circumstances surrounding the Kekas' loan transaction. Beyond what appears in the Kekas' affidavits and declaration, there is no evidence regarding when the Kekas applied for the loan, when precisely the alleged misrepresentations were made, what precisely was allegedly promised to the Kekas, whether any of the alleged statements were in writing, and whether the seven and one-fourth percent interest rate was ever offered by the Credit Union to any of its customers during the relevant time period. [14] Neither the Credit Union nor the Kekas conducted any discovery, and, in pursuing its motion for summary judgment, the Credit Union largely ignored the Kekas' counterclaims and defenses based on the alleged promise of a seven and one-fourth percent interest rate. Nevertheless, the Kekas' averments raise a genuine issue of material fact as to whether the Credit Union's loan officer negotiated the loan with the Kekas in a deceptive manner, and, in particular, whether the alleged representations during the negotiation of the interest rate caused the Kekas, as a natural and probable result, to believe that the interest rate to be charged on their loan would be seven and one-fourth percent and, therefore, to do that which [they] would not otherwise do. See United States Steel Corp., 82 Hawaii at 51, 919 P.2d at 313. If, at the time when the loan documents were ready to be signed and the Kekas were faced with a nine percent rate, the Credit Union unethically or unscrupulously attempted to influence the Kekas to execute them by way of further deceptive representations, designed, as the Kekas allege, to alleviate their concerns that the interest rate was not that for which they had bargained by assuring them that the actual rate would be seven and one-fourth percent, see id., then the Credit Union's conduct would indeed be analogous to a bait and switch. See Goldberg, 492 N.Y.S.2d at 322. Such conduct would have been (1) unethical, oppressive, unscrupulous and substantially injurious to consumers and (2) would have reinforced the tendency to cause the Kekas, as a natural and probable result, to enter into the transaction they may otherwise have declined, thus violating HRS § 480-2 as an unfair and deceptive trade practice. See United States Steel Corp., 82 Hawai`i at 51, 919 P.2d at 313. Our consumer protection statute is remedial in nature and must be liberally construed in order to accomplish the purpose for which it was enacted. Cieri, 80 Hawaii at 68, 905 P.2d at 43 (citing Dawes v. First Ins. Co. of Hawai`i, Ltd., 77 Hawaii 117, 123, 883 P.2d 38, 44 (1994)). Remedial statutes are liberally construed to suppress the perceived evil and advance the enacted remedy. Id. (Brackets omitted). Applying this principle, and viewing the present record and the inferences drawn therefrom in the light most favorable to the Kekas, there is a genuine issue of material fact as whether the Credit Union engaged in unfair and deceptive trade practices, in violation of HRS ch. 480. [15]