Court Opinion

ID: 7800124
Source: CourtListenerOpinion
Date Created: 2022-08-12 13:08:58.909624+00
Date Added: 2024-06-11T16:29:02.014013
License: Public Domain

[Cite as Forsythe Fin., L.L.C. v. Yothment, 2022-Ohio-2798.]

                   IN THE COURT OF APPEALS
               FIRST APPELLATE DISTRICT OF OHIO
                    HAMILTON COUNTY, OHIO

 FORSYTHE FINANCE, LLC,                            :           APPEAL NO. C-210606
                                                               TRIAL NO. 21CV-08067
         Plaintiff,                                :

   vs.                                             :

 JAMES YOTHMENT,                                   :

         Defendant/Third-Party Plaintiff-          :
         Appellant,
                                                   :
   vs.

 NCP FINANCE OHIO, LLC,                            :

         and                                       :

 SUNUP FINANCIAL, LLC,                             :

     Third-Party Defendants-        :
     Appellees.
_______________________________________________________________

 FORSYTHE FINANCE, LLC,                            :           APPEAL NO. C-210550
                                                               TRIAL NO. 21CV-07061
         Plaintiff,                                :

   vs.                                             :

 CATHLEEN SPELLMAN,                                :

         Defendant/Third-Party Plaintiff-          :
         Appellant,
                                                   :
   vs.

 NCP FINANCE OHIO, LLC,                            :

         and                                       :

 SUNUP FINANCIAL, LLC,                             :
                       OHIO FIRST DISTRICT COURT OF APPEALS

      Third-Party Defendants-       :
      Appellees.
________________________________________________________________________

 FORSYTHE FINANCE, LLC,                     :       APPEAL NO. C-210626
                                                    TRIAL NO. 21CV-05720
         Plaintiff,                         :
                                                     O P I N I O N.
   vs.                                      :

 RICHARD SEIBERT,                           :

         Defendant/Third-Party Plaintiff-   :
         Appellant,
                                            :
  vs.

 BASTION FUNDING OH I, LLC,                 :

         and                                :

 SUNUP FINANCIAL, LLC,                      :

         Third-Party Defendants-            :
         Appellees.

Civil Appeals From: Hamilton County Municipal Court

Judgments Appealed From Are: Reversed and Cause Remanded

Date of Judgment Entry on Appeal: August 12, 2022

McKinney & Namei Co., and John A. Rebel, for Defendants/Third-Party Plaintiffs-
Appellants,

Taft Stettinius & Hollister LLP, Michael L. Meyer, Philip D. Williamson and William
E. Braff, for Third-Party Defendants-Appellees.

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                     OHIO FIRST DISTRICT COURT OF APPEALS

BERGERON, Judge.

       {¶1}   In this collection of appeals, consolidated for opinion purposes,

borrowers-appellants contend that each trial court below erred in granting motions to

dismiss for failure to state a claim, dismissing their third-party complaints that

challenged the legitimacy of certain loans issued to them. Given the allegations in the

third-party complaints and the contracts attached thereto, we find that the borrowers

satisfied the minimal requirements necessary to survive dismissal. We accordingly

sustain the assignments of error and remand the cause to the trial courts for further

proceedings consistent with this opinion.

                                            I.

       {¶2}   Some lenders explore creative ways to try to charge excessive interest

rates, often in a cat and mouse game with the legislature that endeavors to proscribe

such efforts. These cases involved such an example, with a lender—prohibited from

making certain loans directly—partnering with a third party to provide loans that

require Ohio individuals to repay three times what they borrowed.

       {¶3}   Before launching into the facts at hand, we provide some context on the

regulatory framework at play here. The version of the Ohio Mortgage Loan Act

(“MLA”) governing the transactions at issue required mortgage lenders and brokers to

register with Ohio’s Division of Financial Institutions (“DFI”) before making certain

loans. In exchange for becoming a registrant, lenders received the ability to conduct

activities connected with residential mortgage loans other than first-lien loans.

Registrants could advertise, solicit, and hold out that they were validly engaged in the

business of providing residential mortgage loans.       They could collect mortgage

payments for themselves and on behalf of others. They could employ and compensate

mortgage loan originators. And in the quirk directly implicating this case, they could

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                      OHIO FIRST DISTRICT COURT OF APPEALS

offer unsecured loans (or loans secured by something other than real property) with

unlimited interest rates, provided the loan amounts fell below $5,000.

       {¶4}    NCP Finance Ohio (“NCP”) is one such registrant. Founded in 2005,

NCP is a consumer finance company which offers credit solutions to “alternative”

lending companies and individual consumers. NCP provides only short-term loans,

admonishing consumers on its website that there are less costly ways to manage their

immediate need for cash. Borrowers who fear they cannot pay on time are advised

that longer-term products through traditional banks could offer a better option.

Because mortgages are not short-term loans, one might be puzzled as to why NCP

registered under Ohio’s MLA. Keep reading.

       {¶5}    In 2008, the General Assembly passed what was at the time the

strongest payday lending reform bill in the country. The Ohio Short-Term Loan Act

(“STLA”) capped the interest rate of short-term loans at 28 percent (inclusive of all

fees), limited the maximum loan amount to $500, and limited borrowers to four loans

a year. See former R.C. 1321.39 to 1321.48. Like the MLA, it forced lenders to register

with the DFI before engaging in the business of making short-term loans to borrowers.

“And then a funny thing happened: nothing. It was as if the STLA did not exist. Not

a single lender in Ohio is subject to the law. How is this possible? How can the General

Assembly set out to regulate a controversial industry and achieve absolutely nothing?

Were the lobbyists smarter than the legislators? Did the legislators realize that the bill

was smoke and mirrors and would accomplish nothing?” Ohio Neighborhood Fin.,

Inc. v. Scott, 139 Ohio St.3d 536, 2014-Ohio-2440, 13 N.E.3d 1115, ¶ 43 (Pfeifer, J.,

concurring).

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                     OHIO FIRST DISTRICT COURT OF APPEALS

       {¶6}   The answer to Justice Pfeifer’s question is that lenders such as NCP

registered under the MLA, presumably to circumvent the STLA’s restrictions. And

while the MLA allowed unfettered interest and fees to be charged for loans under

$5,ooo, there was still the pesky provision in former R.C. 1321.52(C) subjecting MLA

registrants making unsecured loans to all the rules prescribed under sections R.C.

1321.51 to 1321.60. Two of those rules capped the interest rate that a registrant could

contract for and receive at 21 percent of the unpaid principal balance of the loan, or

any rate agreed on by the parties so long as it did not exceed 25 percent. See former

R.C. 1321.57 and 1321.571. This meant that a lender registering under the MLA could

bypass the STLA’s maximum loan amount of $500, but it could not charge an interest

rate exceeding 25 percent. What to do in such a circumstance?

       {¶7}   Enter SunUp, a credit services organization (“CSO”) governed by the

Ohio Credit Services Organization Act (“CSOA”).         The CSOA is (ostensibly) a

consumer-protection law promoted on the Ohio Attorney General’s website as one of

the “key protections that consumers have under the law.” The CSOA regulates

organizations that provide credit-repair assistance, debt counseling, and other debt-

related services to consumers. Like the MLA (and supposedly the STLA), CSOs must

register before conducting business in Ohio. In exchange, the CSO can advertise its

services and charge consumers a fee for providing debt-related services. But unlike

the MLA and the STLA, the version of the CSOA applicable here placed no restrictions

on the fees charged by CSOs. And because CSOs can obtain extensions of credit for a

borrower by law, the fees assessed by a CSO acting in a loan-broker capacity were

essentially unregulated. Perhaps you can see where this is going.

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                     OHIO FIRST DISTRICT COURT OF APPEALS

       {¶8}   The CSOA specifically excludes organizations that make or collect loans

and licensed mortgage brokers. By law then, MLA registrants cannot be CSOs, and

CSOs cannot be MLA registrants. Under what certain lenders dubbed the “CSO

model,” the setup goes like this: the lender (NCP) registers under the MLA so that it

can advertise and collect on the loan. But because that opens it up to interest

limitations they prefer to avoid, the MLA registrant partners with a CSO (SunUp) to

“assist” the consumer in obtaining the loan. The MLA registrant can only charge 25

percent interest on its portion of the loan. The CSO, however, can and does charge

fees far exceeding 25 percent interest. A loan that would be otherwise impermissible

for NCP to make under Ohio law was then (theoretically, at least) possible simply

through its association with SunUp. Left unexplored is the degree to which the

registrants and the brokers are working in concert, obfuscating the line between lawful

and not. As we will see, the General Assembly subsequently promulgated provisions

designed to outlaw this exact practice.

                                          II.

       {¶9}   With that background in mind, we shift the focus to the facts at hand.

SunUp brokered the loans between the borrowers and the lenders in this case.

Borrowers who accept a loan facilitated by SunUp enter first into a credit services

agreement (“CSA”) and are charged a CSO fee, payable to SunUp. The CSA provides

that the fee is due on the same day the loan is made. It further gives borrowers the

option of paying the fee directly to SunUp or of having it financed by a third-party

lender (more on this in a bit). In each of the consolidated cases before us on appeal,

the CSO fee charged by SunUp exceeded the requested loan amount by nearly 200

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                     OHIO FIRST DISTRICT COURT OF APPEALS

percent. Unsurprisingly, all the borrowers elected to have the CSO fee financed with

the loan.

       {¶10} As part of this process, the borrowers also executed a promissory note

with the third-party lender that SunUp arranged to fund the loan. From the total loan

proceeds, each lender then distributed the requested loan amount to the borrower and

paid the remainder to SunUp “on behalf” of the borrower, resulting in each borrower

owing approximately three times more than the amount they received. For example,

Cathleen Spellman financed a total amount of $5,013.38 with NCP. The promissory

note between Ms. Spellman and NCP indicates that NCP disbursed $1,750 directly to

Ms. Spellman and sent $3,263.38 to SunUp on behalf of Ms. Spellman to cover the

CSO fee. But Ms. Spellman would make all of her payments to NCP. Likewise, James

Yothment financed a total of $7,363.70 through NCP, with $2,700 going to Mr.

Yothment and the other $4,663.70 sent to SunUp on his behalf. Richard Seibert’s loan

originated with the now-defunct registrant Bastion Funding OH I LLC, in the total

amount of $5,916.63 ($2,000 went to Mr. Seibert and the remaining $3,916.63 to

SunUp).

       {¶11} All three borrowers defaulted on their loans, prompting the current

assignee of the debts, Forsythe Finance, to sue for nonpayment. In response, each

borrower filed a third-party complaint against SunUp as the CSO, and NCP or Bastion

as the lender.   Ms. Spellman’s and Mr. Yothment’s nearly identical third-party

complaints presented four causes of action that alleged violations of the Ohio Second

Mortgage Act (a.k.a. the Ohio Mortgage Loan Act), the Ohio Credit Services Act, the

Consumer Sales Practices Act, and breach of contract. The third-party complaints

invoked the protection of the MLA by contending that the CSO fee is “the addends of

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                         OHIO FIRST DISTRICT COURT OF APPEALS

the principal amount,” thus imposing on Ms. Spellman an obligation to repay a

principal amount of $5,013.38 plus 25 percent interest to NCP, and on Mr. Yothment

an obligation to repay a principal amount of $7,363.70 plus 25 percent interest to NCP.

The third-party complaints also presented arguments that the CSO fee is an

unauthorized loan-guaranty fee, an unauthorized broker’s fee, or excessive interest.

        {¶12} Mr. Seibert’s third-party complaint alleged violations of the Ohio MLA,

the Ohio CSOA, and R.C. 1343.01. His allegations are in similar vein, stating variously

that the MLA applied because the promissory notes imposed an obligation to “pay the

principal amount of $5,916.63 to Bastion,” that the CSO fee could be considered

excessive interest, or that it could be another type of charge unauthorized by law.

Alternatively, Mr. Seibert alleged that “in the event that the MLA does not apply

because the loan is for $5,000 or less,” then Bastion violated R.C. 1343.01, Ohio’s

usury statute which sets the maximum interest rate for promissory notes.1

        {¶13} The third-party defendants (just NCP and SunUp at this point) moved

to dismiss all the third-party complaints for failure to state a claim under Civ.R.

12(B)(6) or, in the alternative, to compel arbitration. Two primary defenses were

raised by NCP and SunUp in the motions to dismiss: first, that the MLA in effect at the

time of these loans did not apply because the loan amount did not exceed $5,000, and

second, that even if the MLA did apply, SunUp is not subject to the MLA and therefore

its actions do not violate the MLA. None of the trial courts addressed NCP and

SunUp’s request for arbitration.2             The trial courts dismissed the third-party

1Bastion is not an appellee to this appeal, and we thus decline to address the usury argument put
forth solely against Bastion.
2 Before each trial court, NCP and SunUp asked that this matter be sent to arbitration should the
trial courts decline to grant their motion to dismiss. Now apparently content to litigate the matter,
they dropped this argument on appeal and abandoned the point.

                                                     8
                      OHIO FIRST DISTRICT COURT OF APPEALS

complaints “for the reasons stated in the Third Party Defendants’ Combined Motion

to Dismiss.”

       {¶14} We consolidated the borrowers’ appeals into the case number assigned

to Ms. Spellman’s appeal, and therefore use her name and facts in this opinion for ease

of discussion (and because the facts alleged with respect to the other borrowers are

substantially similar). We take no position on how the CSO fee should ultimately be

classified and note only that the question remains unresolved on the state of this

record. The borrowers’ third-party complaints and attached contracts all set forth

facts that, even if somewhat inartfully pled, render dismissal premature at this stage.

Because there is a set of facts here “ ‘consistent with the plaintiff’s complaint, which

would allow the plaintiff to recover, the court may not grant [the] defendant’s motion

to dismiss.’ ” City of Cincinnati ex rel. Radford v. City of Cincinnati, 1st Dist.

Hamilton No. C-030749, 2004-Ohio-3501, ¶ 2, quoting York v. Ohio State Hwy.

Patrol, 60 Ohio St.3d 143, 145, 573 N.E.2d 1063 (1991). Accordingly, we sustain the

borrower’s sole assignment of error (in each case) and reverse the judgments for the

reasons explained more fully below.

                                            III.

       {¶15} Motions to dismiss should only be granted in situations where “the

complaint, when construed in the light most favorable to the plaintiff and presuming

all the factual allegations in the complaint are true, demonstrates that the plaintiff can

prove no set of facts entitling him to relief.” State ex rel. Belle Tire Distribs. v. Indus.

Comm. of Ohio, 154 Ohio St.3d 488, 2018-Ohio-2122, 116 N.E.3d 102, ¶ 17. When

deciding a Civ.R. 12(B)(6) motion to dismiss for failure to state a claim, the trial court

“must accept all factual allegations in the complaint as true and draw all reasonable

                                                   9
                      OHIO FIRST DISTRICT COURT OF APPEALS

inferences in favor of the nonmoving party.” Fox Consulting Group, Inc. v. Mailing

Servs. of Pittsburgh, Inc., 1st Dist. Hamilton No. C-210250, 2022-Ohio-1215, ¶ 6.

Appellate courts review a trial court’s ruling on a Civ.R. 12(B)(6) motion de novo. Id.

at ¶ 7. The borrowers need not prove their case at this stage of the adjudication

process; rather, they need only plead a set of facts that, if proved, would entitle them

to recover. See id. at ¶ 7. Because the third-party complaints meet this liberal pleading

standard, dismissal is inappropriate at this stage of the pleadings.

                                           A.

       {¶16} The thrust of NCP and SunUp’s first defense is that the CSO fee is

independent of the loan issued by NCP, thus rendering the MLA inapplicable. That

conclusion strikes us as inconsistent with the framework of the loan and in conflict

with many of the key factual points alleged in the third-party complaints. NCP claims

that the borrower never pays the CSO fee to a registrant and that SunUp is the only

party who charged or received fees relating to the CSO fee. But that premise requires

us to construe the facts in NCP and SunUp’s favor, rather than the borrower’s favor.

Take a look at the promissory note at issue, in which the borrower promises to pay

NCP the principal amount plus interest, where the principal amount includes the CSO

fee. No mention is made of payments going directly from the borrower to the CSO

because that’s not how the note is structured. NCP’s efforts to render itself irrelevant

for purposes of analyzing the CSO fee simply cannot be squared with the structure of

the contract it prepared.

       {¶17} The crux of this case turns legally on how the CSO fee should be

classified, and factually on the murky (as far the record discloses) relationship between

NCP and SunUp. We see at least three potential answers to the classification question

                                                10
                      OHIO FIRST DISTRICT COURT OF APPEALS

according to Ms. Spellman, all of which come with varying legal implications.

Regarding potential violations of the MLA, the CSO fee could be considered principal

pursuant to former R.C. 1321.51(D), or it could be interest under former R.C.

1321.51(E), but if it is neither principal nor interest, then it may constitute a prohibited

charge under former R.C. 1321.57(H)(1). Ms. Spellman first posits that the CSO fee

represents a part of the principal amount of her loan. “Principal” is defined in former

R.C. 1321.51(D) as “the amount of cash paid to, or paid or payable for the account of,

the borrower, and includes any charge, fee or expense that is financed by the borrower

at origination of the loan or during the term of the loan.”

       {¶18} Characterizing the CSO fee as part of the principal amount certainly

seems plausible based on the facts set forth in Ms. Spellman’s third-party complaint.

Neither side seems to dispute that the CSO fee was (1) a charge, fee, or expense, (2)

financed by Ms. Spellman (the borrower), or (3) at the origination of her loan, thus her

complaint seems to pass muster in meeting the statutory definition of “principal.”

Most tellingly, NCP and SunUp’s combined motions to dismiss each include a

characterization that “[t]he principal amount also included a Credit Services

Organization (CSO) fee * * * for SunUp’s services as outlined in the Credit Services

Agreement.” If we proceed from the premise that the CSO fee is principal, which

seems plausible based on the face of Ms. Spellman’s third-party complaint, the MLA

would govern the transaction with respect to the contract between Ms. Spellman and

NCP.

       {¶19} NCP and SunUp rely on their broad argument that the MLA is

inapplicable to these transactions because the version of the MLA in effect at the time

only governed loans exceeding $5,000. But the promissory note provides that it is

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                      OHIO FIRST DISTRICT COURT OF APPEALS

“governed by the laws of the State of Ohio, specifically the Ohio Mortgage Loan Act.”

(Emphasis added.) That makes sense considering the total amounts of these loans

(including the financed CSO fee) did exceed $5,000. The promissory note in Ms.

Spellman’s case further provides that the principal amount is $5,013.38 and that

“[i]nterest will accrue on a daily basis on the unpaid Principal Amount.” Our back-of-

the-napkin math based on the lending disclosures between Ms. Spellman and NCP

indicates that NCP did indeed charge the statutorily allowable maximum interest rate

of 25 percent on the total amount of $5,013.38. We are perplexed to understand how

NCP justifies charging interest on a financial transaction to which it simultaneously

claims to not be involved. In other words, more information is needed surrounding

this arrangement. Accepting all of Ms. Spellman’s factual allegations as true, as we

must at this stage, it appears she could prove a set of facts that would demonstrate that

the CSO fee represents principal under the MLA. See Thomas v. Othman, 2017-Ohio-

8449, 99 N.E.3d 1189, ¶ 18 (1st Dist.).

       {¶20} The borrowers alternatively contend that if the CSO fee is not principal,

then it constitutes a form of interest exceeding the permissible maximum rate allowed

by the MLA. “Interest” is defined in former R.C. 1321.51(E) as “all charges payable

directly or indirectly by a borrower to a registrant as a condition to a loan or an

application for a loan.” (Emphasis added.) Here again, NCP and SunUp dispute the

applicability of the MLA in its entirety, pointing to the distinctions between registrants

under the MLA (such as NCP) and nonregistrants (such as SunUp). They argue that

“because borrowers never pay the CSO fee to a registrant lender, the CSO fee cannot

be interest under the MLA.” Simply parsed, they refute the notion that the MLA

                                               12
                      OHIO FIRST DISTRICT COURT OF APPEALS

applies or that the CSO fee could be interest because the fee is paid to SunUp, a

nonregistrant, and not to NCP, a registrant.

       {¶21} Accepting NCP and SunUp’s argument on this point requires starting

from the premise that the CSO fee is paid solely by the borrower to SunUp, a fact not

yet established on this record. It also requires ignoring the plain text of the statutory

definition of “interest.” NCP freely admits to transferring the CSO fee directly to

SunUp on behalf of the borrower and to receiving payments from the borrowers, but

despite that admission, it proclaims that the CSO fee is not charged by NCP or payable

to NCP. Again, we cannot reach such a conclusion without construing the facts in favor

of NCP and SunUp. The statute defines interest as all charges payable directly or

indirectly to a registrant as a condition of the loan. The promissory note charged Ms.

Spellman with paying NCP back the full amount of $5,013.38, not SunUp, a potentially

indirect way for the CSO fee to be paid by Ms. Spellman to NCP. Whether one views

this as direct or indirect, the money appears to go in NCP’s pocket, at least for statutory

purposes. Furthermore, as noted above, it appears NCP charged interest on the CSO

fee. We struggle to reconcile how NCP could front the funds to SunUp, facilitate the

transfer, collect reimbursement (including interest) from the borrower, and then wash

its hands of any involvement with the CSO fee. Especially on this record, which has

yet to shed light on the relationship between NCP and SunUp.

       {¶22} Another consequence of NCP and SunUp’s argument here is that, if

correct, SunUp had no constraint on its ability to charge its fee. If it wanted, it could

have charged $10,000, or even $1,000,000.            SunUp admits that the legislative

loophole could allow for such mind-boggling charges but is quick to claim that such

amounts would be fanciful because no borrower would agree to it. This argument,

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                     OHIO FIRST DISTRICT COURT OF APPEALS

however, strays out onto thin ice. After all, the borrowers here agreed to pay twice the

amount of their loans. Maybe they would have refused our million-dollar example,

but if they were truly desperate, why not three or four times the loan amount? This

illustrates the problems inherent in this arrangement because the General Assembly

sought to protect consumers, but SunUp is effectively saying that it can charge any fee

amount without constraint.

       {¶23} This concerning arrangement between the third-party defendants also

raises serious questions about whether the CSO fee is indeed a condition of the loan,

thus similarly rendering it interest as defined by statute. NCP insists that Ms.

Spellman had the choice to pay the fee directly to SunUp as opposed to financing it

through them, begging the obvious question: if Ms. Spellman had $3,263.38 at her

disposal, why would she need a loan in the amount of $1,750? A choice that is wholly

illusory is no choice at all. Dismissal at this stage leaves the record devoid of any

examination into whether Ms. Spellman could have obtained her loan without

incurring the CSO fee.

       {¶24} NCP counters that Ms. Spellman ignores the plain language of the

promissory note, which describes the fee as “not interest for purposes of Ohio law.”

Perhaps, but in contracts of adhesion involving consumer transactions in a regulated

area, courts must pay closer attention to the substance of the contract. “This closer

scrutiny is necessary for the preservation of the protections afforded consumers

through legislation.” Eagle v. Fred Martin Motor Co., 157 Ohio App.3d 150, 2004-

Ohio-829, 809 N.E.2d 1161, ¶ 45 (9th Dist.). And just because the loan documents

proclaim that the CSO fee is only charged by and payable to SunUp does not make it

so—that is a legal conclusion that the courts below should draw from a complete

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                      OHIO FIRST DISTRICT COURT OF APPEALS

record. The only thing we know for certain at this point is that Ms. Spellman has pled

a plausible set of facts from which a more thorough discovery process may reveal that

the CSO fee meets the statutory definition of interest.

       {¶25} Finally, regarding potential violations of the MLA, Ms. Spellman offers

one additional argument. If the CSO fee is not principal, and it is not interest, then

she contends that it is verboten by Ohio law. In support of this argument, Ms.

Spellman points to the part of the statute directing that “no further or other amount,

whether in the form of broker fees, placement fees, or any other fees whatsoever, shall

be charged or received by the registrant.”          Former R.C. 1321.57(H)(1).       NCP

maintained in its brief and at oral argument that the CSO fee is not principal or interest

but is something else, “a fee that is independent of the loan issued by NCP.” NCP goes

on to insist that the CSO fee is not subject to the prohibitions in R.C. 1321.57(H)(1)

because it only applies to registrants, and the fee is “only charged by and payable to

SunUp,” a nonregistrant. Again, this assertion requires us to construe facts in favor of

NCP and SunUp. NCP’s involvement with SunUp and the charging of the CSO fee is

not yet fleshed out by the record. The question before us at this stage is whether, based

on Ms. Spellman’s third-party complaint, the CSO fee could be classified as

unauthorized under the applicable version of R.C. 1321.57(H)(1). We believe it could,

based on the pleadings at hand and the contracts in the record.

       {¶26} NCP’s only defense on this point features the now-familiar refrain that

it played no role in the charging of CSO fee, professing that the MLA does not apply

because “SunUp is the only party that charged or received fees relating to the CSO.”

NCP is correct that former R.C. 1321.57(H)(1) applied only to registrants. But NCP is

a registrant, and the statute prohibits broker fees or any other fees whatsoever from

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                      OHIO FIRST DISTRICT COURT OF APPEALS

being charged or received by the registrant. SunUp appears to qualify as a broker,

defined in the former R.C. 1321.51(J) as “a person who acts as an intermediary or agent

in finding, arranging, or negotiating loans, other than residential mortgage loans, and

charges or receives a fee for these services.” Does Ms. Spellman’s reimbursement of

the broker fee to NCP equate to a broker fee being paid to a registrant? It is too soon

to tell, but the parties structured these payments so that NCP received them from the

borrowers. The statute includes the word “received,” and while NCP can protest that

it funneled the money back to SunUp, it has difficulty escaping the fact that it received

these funds (or was supposed to) on the state of this record. Based on the alleged facts

before us, if NCP is correct that the CSO fee is neither principal nor interest, then the

contract plausibly could violate R.C. 1321.57(H)(1) if NCP received “a further or other

amount” in the form of SunUp’s fee as well as interest on the CSO fee.

       {¶27} We appreciate that borrowers have taken a “kitchen sink” approach to

challenging the CSO fee, but they can do that at this stage. Indeed, both parties have

taken different, and sometimes inconsistent, positions on how the CSO fee should be

characterized between their trial and appellate court briefings.         That is likely

attributable to the novel nature of the structure of these loans, and further factual

probing will help illuminate the legal issues at play. Regardless of how the CSO fee is

ultimately defined, Ms. Spellman’s third-party complaint sets forth facts at this point

from which it could be reasonably inferred that a violation of the MLA occurred. That

is enough to allow these cases to proceed.

                                             B.

       {¶28} Ms. Spellman’s breach-of-contract claim (Count II) similarly relies on

an initial classification of the CSO fee. The claim alleges that NCP failed to refund any

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                       OHIO FIRST DISTRICT COURT OF APPEALS

amounts paid which exceeded the highest interest rate allowed by law.                That

determination cannot be made until the trial courts grapple with whether the CSO fee

is interest or another type of unauthorized charge (or whether it rejects those claims

and finds it perfectly permissible). There are simply too many unknowns that could

tip the scales in Ms. Spellman’s favor to conclude that she has pled no possible set of

facts that would entitle her to relief.

                                           C.

       {¶29} In addition to violations of the MLA and the contractual claim, Ms.

Spellman further suggests on appeal that the CSO fee is a type of insurance guaranty

prohibited by the Ohio Insurance Producers Licensing Act.             NCP and SunUp

responded that the borrowers failed to raise this cause of action before the trial courts,

including it only as part of their claim under the MLA. Our review of the complaint

shows that Ms. Spellman included the credit-guaranty insurance as a type of

unauthorized fee prohibited by the MLA, but in the context of Count I of her complaint

alleging a violation of the MLA. NCP and SunUp’s motion to dismiss contains a

heading stating that the CSO fee is not a guaranty fee or credit-guaranty insurance,

though they fail to develop the argument further.

       {¶30} In other words, neither party focused on the insurance aspect of this

claim below. At this stage of the proceedings, we have no cause of action alleging a

violation of any insurance-related statutory regime to evaluate. We have already

concluded, based on the analysis above, that Count I survives the motion to dismiss by

virtue of the MLA alleged violation. In light of that, and given the absence of any real

elaboration on this point below, we decline the invitation to wade into the insurance-

related arguments that the parties present on appeal.

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                     OHIO FIRST DISTRICT COURT OF APPEALS

                                          D.

       {¶31} In addition to the preceding discussion, Ms. Spellman further alleged

that SunUp engaged in fraudulent and deceptive consumer transactions (Counts III

and IV). We have little hesitation drawing an inference of these violations in favor of

Ms. Spellman, consistent with our analysis above and given the standard under Civ.R.

12(B)(6). SunUp may not be a registrant governed by the MLA, but it is a CSO subject

to the provisions of the CSOA. The CSOA mandates that organizations that offer credit

repair, debt counseling, or related services provide consumers with a clear and

accurate description of the services to be provided and the costs for such services.

SunUp claims it provided a service to Ms. Spellman and the other borrowers, namely

“assisting in arranging an installment loan,” “preparing and completing the

information and documents,” and “providing a guaranty to the lender to back the

loan.” When asked during oral argument what assistance SunUp provides to the

customer in filling out what appears to be a standard online form, SunUp’s counsel

(correctly) declined to answer because that information fell outside the record

considering that we are only at the motion to dismiss stage—precisely the point of why

dismissal at this stage is improper. SunUp should be providing some substantial

services to borrowers to charge them double the amount of their loans, but what those

services are remains a mystery on the state of this record.

       {¶32} On the face of Ms. Spellman’s third-party complaint, which includes the

CSA between her and SunUp, we find it plausible that SunUp provided little actual

service to her. The agreement provides that Ms. Spellman is “request[ing] CSO to

provide a guaranty to assure payment to Lender,” but also that Ms. Spellman promises

“to reimburse CSO for any amounts CSO pays the Lender pursuant to the guaranty.”

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                      OHIO FIRST DISTRICT COURT OF APPEALS

Logically, this means that Ms. Spellman paid SunUp $3,263.38 (or NCP, or both,

depending on what the trial courts find when they peek behind the veil covering this

liaison) for nothing more than the word “guaranty” on a piece of paper. Because

SunUp reserved the right to collect any fees incurred should it be forced to honor its

“guaranty,” it can (theoretically) collect twice on Ms. Spellman. Potentially three times

when you count the money owed to NCP. (For instance, given Forsythe’s complaint,

it is apparently pursuing NCP’s interests, but SunUp could separately pursue

borrowers for any guaranty claim.)

       {¶33} The CSOA also prohibits CSOs from engaging in unconscionable, unfair,

or deceptive acts or practices as those terms are defined by the Ohio Sales Consumer

Practice Act (“OCSPA”) in R.C. Chapter 1345.            The OCSPA describes seven

circumstances in former R.C. 1345.03(B) that should be taken into consideration when

determining whether an act or practice is unconscionable. Of relevance here is R.C.

1345.03(B)(4), which states that it is unconscionable for a supplier to make a

transaction knowing that there was no reasonable probability of payment in full by the

consumer. On the state of this record, we cannot answer whether SunUp inquired into

Ms. Spellman’s ability to repay the amounts borrowed. Other potential provisions

could also be implicated. See, e.g., R.C. 1345.03(B)(1) (whether a supplier took

advantage of the consumer’s inability to protect his or her own interest); R.C.

1345.03(B)(2) (whether a supplier knew the consumer transaction’s price

substantially exceeded similar transactions); R.C. 1345.03(B)(3) (whether a supplier

knew the consumer was unlikely to receive a substantial benefit from the transaction);

R.C. 1345.03(B)(5) (whether a supplier knew the terms of a consumer transaction were

substantially one-sided).

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                      OHIO FIRST DISTRICT COURT OF APPEALS

       {¶34} SunUp claims on appeal that any claim for a violation of the OCSPA is

barred by the statute of limitations, but it has yet to broach this argument before the

trial courts (failing to include it in any of the motions to dismiss), so we have no

occasion to consider it at this point. See State ex rel. Zollner v. Indus. Comm., 66 Ohio

St.3d 276, 278, 611 N.E.2d 830 (1993) (“A party who fails to raise an argument in the

court below waives his or her right to raise it here.”). SunUp can certainly pursue the

timeliness defense on remand if it believes the facts warrant it.

       {¶35} As pleaded before us, however, this arrangement between SunUp and

NCP seems incongruous with the purpose and intent of the CSOA, which is to protect

consumers from credit repair service organizations that charge high fees but provide

little service to consumers. Indeed, these types of concerns appear to have galvanized

the General Assembly to pass H.B. 123, The Ohio Fairness in Lending Act, in 2018. In

fact, none of the loans in this case would be allowed today, as H.B. 123 revised the

CSOA to prohibit registered CSOs from assisting in the origination of short-term loans

when the repayment term is less than a year, when the loan is less than $5,000, and

when the annual percentage rate of the loan is greater than 28 percent. See R.C.

4712.071. We cannot turn a blind eye to the General Assembly’s efforts to protect

consumers from this exact scenario.

                                          IV.

       {¶36} In conclusion, the arrangement described in the borrowers’ third-party

complaints looks very concerning, and they have pled facts which may prove violative

of Ohio law. Of course, at this stage of the proceedings, we have only heard their side

of the story—but that is how motions to dismiss work, and we accordingly express no

view on the merits of the borrowers’ claims. For the reasons set forth above, the trial

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                      OHIO FIRST DISTRICT COURT OF APPEALS

courts below erred in granting NCP and SunUp’s motions to dismiss for failure to state

a claim.   We reverse the judgments of the trial courts, sustain the borrowers’

assignment of error, and remand the cause to the trial courts for proceedings

consistent with this opinion.

                                             Judgments reversed and cause remanded.
BOCK, J., concurs.
ZAYAS, P.J., concurs in judgment only.

Please note:
       The court has recorded its own entry this date.

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