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Persels & Associates, LLC v. Department of Consumer and Business Services

Court of Appeals of Oregon

June 21, 2017

DEPARTMENT OF CONSUMER AND BUSINESS SERVICES, Division of Finance and Corporate Securities, Respondent.

          Argued and Submitted May 11, 2016

         Department of Consumer and Business Services DM120049

          Todd S. Baran argued the cause for petitioner. With him on the brief was Todd S. Baran, PC.

          Patrick M. Ebbett, Assistant Attorney General, argued the cause for respondent. With him on the brief were Ellen F. Rosenblum, Attorney General, and Paul L. Smith, Deputy Solicitor General.

          Before Ortega, Presiding Judge, and Lagesen, Judge, and Garrett, Judge.

         Case Summary:

         Persels & Associates, LLC (Perseus), a Maryland law firm, petitions for review of a final order of the Department of Consumer and Business Services. In the order, the director concluded that Persels committed multiple violation of ORS 697.612(1) by providing debt management services in Oregon without first registering with the director. Persels contends that the director erred when it concluded that Persels was not exempt from the registration requirement under ORS 697.612(3)(b), which exempts from the registration requirement, "[a]n attorney licensed or authorized to practice law in this state, if the attorney provides a debt management service only incidentally in the practice of law." The director reasoned that the exception does not apply to Persels because Persels-a law firm-is not "an attorney" within the meaning of the statute and, alternatively, that even if the exception could apply to a law firm, Persels would not qualify for the exception because Persels does not provide its debt management services "only incidentally" to the practice of law. Persels also challenges the director's determination that Persels violated ORS 697.612(1) each time that it provided an initial consultation to 1, 801 Oregon consumers without having registered with the director, contending that its failure to register with the director [286 Or.App. 316] constituted only a single violation of the statute. Held: The director correctly determined Persels was not exempt pursuant to ORS 697.612(3)(b) from registering with the director because the undisputed facts regarding Persels' conduct of its business demonstrate that Persels engages in exactly the type of business that the legislature intended to require registration with the director. That is so even if Persels' local attorneys might, themselves, be able to avail themselves of the attorney exception. Finally, Persels' argument that the director erred in assessing the number of violations it committed under ORS 697.612(1) does not square with the statute's plain text. That statute does not indicate that the legislature conceptualized the provision as creating a "status, " such that the failure to register would constitute a single ongoing violation, or that the legislature intended the failure to register to result in a violation of ORS 697.612 only once every two years.

         [286 Or.App. 317] LAGESEN, J.

         Petitioner Persels and Associates, LLC, (Persels) is a law firm and Maryland limited liability company. The primary services that Persels provides are debt settlement services. For a fee, Persels offers to collect money from a consumer and then, once it has collected enough money, negotiate with a consumer's creditors to reduce the consumer's unsecured debt to an amount that the consumer can pay using the collected funds. Persels offers these services to consumer debtors nationwide, including those located in Oregon. Although ORS 697.612 generally requires those who do what Persels does to register with the director of the Department of Consumer and Business Services (DCBS) before providing-or offering to provide-such services in Oregon, Persels did not register with the director before it began offering its services to Oregon consumers. Following a contested case, the director determined that Persels committed 1, 801 violations of ORS 697.612 when, without having registered with the director, Persels held paid consultations with 1, 801 Oregon consumers at which Persels offered-for a fee-to provide its services to those consumers. The director issued a final order directing Persels to cease and desist from ongoing violations of the Oregon laws governing debt management service providers and to pay an assessed $500, 000 civil penalty.

         Persels seeks judicial review of that order under ORS 183.482. On review, Persels asserts that the director erred in concluding that its conduct violated Oregon law. It contends that it had no obligation to register with the director because ORS 697.612(3)(b) exempts some attorneys from the registration requirement. Persels argues that it is entitled to the benefit of that exemption. Alternatively, Persels asserts that it committed at most a single violation of ORS 697.612, and that the director therefore erred in determining that it had committed 1, 801 violations. For the reasons that follow, we disagree with Persels on both points. We therefore affirm.

         [286 Or.App. 318] I. STANDARD OF REVIEW

         The director resolved the contested case on the parties' cross-motions for summary determination.[1] Under these circumstances, we review the director's order for errors of law. ORS l83.482(8)(a); Hamlin v. PERB. 273 Or.App. 796, 798-99, 359 P.3d 581 (2015) (stating standard of review applicable to orders in contested cases arising from a grant of summary determination).


         A. Regulatory Framework

         ORS 697.602 to 697.842 governs the provision of "debt management services" in Oregon. The legislature originally enacted those statutes in 1983, and then amended them in 2009. It did so to strengthen regulation of the debt management services industry in response to "new and troubling forms of debt management companies" using business models that the statutes, prior to amendment, did not reach. Testimony, House Consumer Protection Committee, HB 2191, Feb 9, 2009, Ex 4 (written statement of David Tatman, Administrator, Division of Finance and Corporate Securities, Department of Consumer and Business Services); see generally Or Laws 2009, ch 604; see also Matthew Brock, As Cats are Drawn to Cream: Expanding Debt Settlement Regulation to Traditionally-Exempt Entities, 47 Colum J L & Soc Probs 385, 404-11 (2014) (discussing the different business models employed by debt management companies to [286 Or.App. 319] avoid regulation under existing state laws during the early part of the twenty-first century).[2] As the administrator of the DCBS Division of Finance and Corporate Securities who proposed the amendments explained, greater regulatory oversight was required because these new forms of debt management services were extracting significant fees from debt-ridden consumers and then providing little or no assistance of value to the consumer:

"In the past few years, we have seen the birth and growth of debt settlers or debt eliminators who use a business model not under our regulation. For example, debt elimination providers claim the ability to eliminate various types of debt for an upfront fee. They claim to be able to negotiate with creditors, usually credit card companies, but also other creditors, and eliminate principal and interest in return for a single lump sum payment that significantly lowers the balance owed. Most of us encountered the advertisements on radio, television or the Internet in which debt settlement companies mention incredible results for previous clients. Claims like 'debt reduced by 50%, 60% or even 75%' and 'debt settled in 12 to 30 months.'
"Additionally, these companies inappropriately advise a consumer to stop communicating with a creditor-which is generally to the detriment of the consumer. Debt elimination providers do not accept money from a consumer for redistribution to the consumer's creditors. Instead, debt settlement or debt eliminator companies have the debtor save money in the debtor's bank account, after first paying the debt settlement company a hefty upfront fee, until such time as the debt settlement company has negotiated a reduction in the amount to be paid to settle the debt and then instructs the debtor to pay the creditor.
"Unfortunately, the delay in contacting or negotiating the debt may take several to many months' time during which there has been no contact or payment to the creditor. In the meantime, creditors have filed suit to collect [286 Or.App. 320] the debt, obtain a judgment and begin garnishing wages and bank accounts. We have talked to representatives of the Oregon Collectors Association, the organization that represents collection agencies in Oregon. They advise that many of their collectors do not believe debt settlement companies provide a meaningful resolution to the debt they are collecting and generally disregard proposals from these companies.
"The scenario I describe is in the best of circumstances, when a genuine, if expensive and ineffective, effort may be made on behalf of a debtor. In worst-case scenarios, we have heard of debtors who provide a significant upfront fee and then vainly wait to hear back from the debt settlement company with further instructions. The end result is that the debtors have lost additional money and precious time in finding the best approach to their debt problems."

         Testimony, House Consumer Protection Committee, HB 2191, Feb 9, 2009, Ex 4 (written statement of David Tatman, Administrator, Division of Finance and Corporate Securities, Department of Consumer and Business Services).

         As amended, the statutes (1) define the types of services and conduct that are regulated as "debt management services" and (2) impose numerous requirements on the provision of those services and the fees that may be charged for those services.

         For purposes of the regulatory scheme, a person provides a debt management service by providing certain services for a fee and, in some instances, simply by offering to provide specified services for a fee. ORS 697.602(2) identifies the conduct that constitutes the provision of a debt management service. It states:

"'Debt management service' means an activity for which a person receives money or other valuable consideration or expects to receive money or other valuable consideration in return for:
"(a) Receiving or offering to receive funds from a consumer for the purpose of distributing the funds among the consumer's creditors in full or partial payment of the consumer's debts, whether or not the person holds the consumer's funds;
[286 Or.App. 321] "(b) Improving or offering to improve or preserve a consumer's credit record, credit history or credit rating;
"(c) Modifying or offering to modify terms and conditions of an existing loan from or obligation to a third party; or
"(d) Obtaining or attempting to obtain as an intermediary on a consumer's behalf a concession from a creditor including, but not limited to, a reduction in the principal, interest, ...

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