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IN THE MATTER OF: PERSELS & ASSOCIATES, LLC ("Respondent") * * * * * * * * * * * * * * * * * * * |
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TEMPORARY ORDER TO ORDER TO MAKE RESTITUTION NOTICE OF INTENT TO IMPOSE AND NOTICE OF RIGHT TO HEARING |
I. LEGAL AUTHORITY AND JURISDICTION
The Banking Commissioner (“Commissioner”) is charged with the administration of Sections 36a-671 to 36a-671e, inclusive, of the Connecticut General Statutes contained in Part II of Chapter 669 of the Connecticut General Statutes, “Debt Adjusters and Debt Negotiation”.
Pursuant to the authority granted by Section 36a-17(a) of the 2012 Supplement to the General Statutes, as amended by Public Act 12-96, the Commissioner, through the Consumer Credit Division of the Department of Banking, has investigated the activities of Respondent to determine if it has violated, is violating or is about to violate the provisions of the Connecticut General Statutes within the jurisdiction of the Commissioner.
Section 36a-17(a) of the 2012 Supplement to the General Statutes, as amended, provides, in pertinent part, that:
The commissioner, in the commissioner’s discretion, may, subject to the provisions of section 36a-21 and the Freedom of Information Act, as defined in section 1-200; (1) make such public or private investigations or examinations within or outside this state, concerning any person subject to the jurisdiction of the commissioner, as the commissioner deems necessary to carry out the duties of the commissioner, (2) require or permit any person to testify, produce a record or file a statement in writing, under oath, or otherwise as the commissioner determines, as to all the facts and circumstances concerning the matter to be investigated or about which an action or proceeding is pending . . . .
Section 36a-52 of the Connecticut General Statutes provides, in pertinent part, that:
(a) Whenever it appears to the commissioner that any person has violated, is violating or is about to violate any provision of the general statutes within the jurisdiction of the commissioner, . . . the commissioner may send a notice to such person by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt. The notice shall be deemed received by the person on the earlier of the date of actual receipt, or seven days after mailing or sending. Any such notice shall include: (1) A statement of the time, place, and nature of the hearing; (2) a statement of the legal authority and jurisdiction under which the hearing is to be held; (3) a reference to the particular sections of the general statutes . . . alleged to have been violated; (4) a short and plain statement of the matters asserted; and (5) a statement indicating that such person may file a written request for a hearing on the matters asserted within fourteen days of receipt of the notice. If a hearing is requested within the time specified in the notice, the commissioner shall hold a hearing upon the matters asserted in the notice, unless the person fails to appear at the hearing. After the hearing, the commissioner shall determine whether an order to cease and desist should be issued against the person named in the notice. If the person does not request a hearing within the time specified in the notice or fails to appear at the hearing, the commissioner shall issue an order to cease and desist against the person. No such order shall be issued except in accordance with the provisions of chapter 54.
(b) If the commissioner finds that the public welfare requires immediate action, the commissioner may incorporate a finding to that effect in the notice sent in accordance with subsection (a) of this section and issue a temporary order requiring the person to cease and desist from the activity which constitutes such alleged violation and to take or refrain from taking such action as in the opinion of the commissioner will effectuate the purposes of this section. Such temporary order shall become effective on receipt and, unless set aside or modified by a court, shall remain in effect until the effective date of a permanent order or dismissal of the matters asserted in the notice.
Section 36a-50 of the Connecticut General Statutes, as amended by Public Act 12-96, provides, in pertinent part, that:
(a)(1) Whenever the commissioner finds as the result of an investigation that any person has violated any provision of the general statutes within the jurisdiction of the commissioner, . . . the commissioner may send a notice to such person by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt. The notice shall be deemed received by the person on the earlier of the date of actual receipt or seven days after mailing or sending. Any such notice shall include: (A) A statement of the time, place, and nature of the hearing; (B) a statement of the legal authority and jurisdiction under which the hearing is to be held; (C) a reference to the particular sections of the general statutes . . . alleged to have been violated; (D) a short and plain statement of the matters asserted; (E) the maximum penalty that may be imposed for such violation; and (F) a statement indicating that such person may file a written request for a hearing on the matters asserted not later than fourteen days after receipt of the notice.
(2) If a hearing is requested within the time specified in the notice, the commissioner shall hold a hearing upon the matters asserted in the notice unless such person fails to appear at the hearing. After the hearing, if the commissioner finds that the person has violated any such provision, . . . the commissioner may, in the commissioner’s discretion and in addition to any other remedy authorized by law, order that a civil penalty not exceeding one hundred thousand dollars per violation be imposed upon such person. If such person does not request a hearing within the time specified in the notice or fails to appear at the hearing, the commissioner may, as the facts require, order that a civil penalty not exceeding one hundred thousand dollars per violation be imposed upon such person.
(3) Each action undertaken by the commissioner under this subsection shall be in accordance with the provisions of chapter 54. . . .
(c) Whenever the commissioner finds as the result of an investigation that any person has violated any provision of the general statutes within the jurisdiction of the commissioner, . . . the commissioner may, in addition to any other remedy authorized by law, order such person to (1) make restitution of any sums shown to have been obtained in violation of any such provision . . . plus interest at the legal rate set forth in section 37-1 . . . . After the commissioner issues such an order, the person named in the order may, not later than fourteen days after receipt of such order, file a written request for a hearing. The order shall be deemed received by the person on the earlier of the date of actual receipt or seven days after mailing or sending. Any such hearing shall be held in accordance with the provisions of chapter 54.
II. MATTERS ASSERTED
| 1. |
Respondent is a Maryland limited liability company having its principal place of business at 29 West Susquehanna Avenue, Suite 400, Towson, Maryland. |
| 2. |
Respondent purports to be a national law firm that provides services in all 50 states to “individuals burdened by overwhelming unsecured debt”. Such services primarily consist of “helping people get out of debt” by negotiating significant reductions in clients’ unsecured debt balances with creditors. The typical arrangement requires that clients pay a monthly amount into an escrow account with the stated goal of settling the entire amount of unsecured debt enrolled in the program in three to five years. |
| 3. |
From at least January 2010 to May 2012, Respondent engaged in debt negotiation of unsecured debt on behalf of at least 300 Connecticut residents who were referred to Respondent by a third party licensed as a debt adjuster in Connecticut (“Debt Adjuster”). Respondent receives most of its Connecticut clients from referrals by the Debt Adjuster. |
| 4. |
Debt Adjuster advertises debt relief services nationwide via television and radio commercials. Individuals call Debt Adjuster in response to such advertisements and are evaluated by the Debt Adjuster to determine whether they are best suited for either Debt Adjuster’s debt adjustment program or Respondent’s debt negotiation program (also called debt settlement). Debt Adjuster refers approximately the same number of Connecticut residents to Respondent’s debt negotiation program as it retains for its debt adjustment program.
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| 5. |
In addition to referring clients to Respondent, Debt Adjuster also provides debt settlement processing services to Respondent, including collecting and storing client data, mailing of letters and other documents to clients and creditors, processing client payments to Respondent, negotiating settlements with creditors and providing reporting assistance to Respondent. Debt settlement processing revenue from Respondent accounted for over 50% of Debt Adjuster’s revenues for the year ending December 31, 2010. |
| 6. | Generally, Respondent charges Connecticut residents an initial consultation fee of $150 and a contingency fee of 40% of the amount by which a consumer’s debt is reduced as part of each negotiated settlement. Such fees are in excess of amounts that debt negotiators may charge for services pursuant to the Schedule of Maximum Fees established by the Commissioner on or about October 1, 2009 (“Schedule of Maximum Fees”). The Schedule of Maximum Fees provides, in pertinent part, that, “[a] debt negotiator of unsecured debt may charge the debtor a reasonable one-time initial or set-up fee in an amount not to exceed fifty dollars ($50). . . . A debt negotiator of unsecured debt may collect total aggregate fees including the initial fee and service fees, not to exceed ten percent (10%) of the amount by which the consumer’s debt is reduced as part of each settlement . . .”. In addition, clients are instructed to stop paying their credit card debt while enrolled in Respondent’s debt negotiation program. |
| 7. |
On or about February 2011, a Connecticut resident complained to the Commissioner concerning the services provided by Respondent. The Connecticut resident stated that he had called the Debt Adjuster, which referred him to Respondent for debt negotiation services. In March 2010, the Connecticut resident placed three credit accounts with Respondent and by February 2011, the Connecticut resident complained that he was in “far worse shape than one year ago”, his “credit is destroyed” and he “owe[s] even more, with interest” than when he had started the program. |
| 8. | Initially, Respondent assigned the Connecticut resident to an attorney who had been admitted to practice law in Connecticut for less than two years. In January 2011, Respondent replaced such attorney with another attorney who had been admitted to practice law in Connecticut for approximately two months, Attorney Michaud. |
| 9. | From March 2010 to February 2011, the Connecticut resident made monthly payments of $282 to Respondent in lieu of making payments directly to his three creditors. During such time period, Respondent settled only one credit account, and did not pay any monies on the other two credit accounts. In February 2011, the Connecticut resident received notice of a lawsuit brought by one of the unpaid creditors. |
| 10. | In February 2011, after paying $3,102 to Respondent in connection with his debt negotiation program, the Connecticut resident cancelled his debt negotiation contract. An accounting by Respondent of monies paid indicated that $1,781 was paid to creditors, $1,193 was paid to Respondent for fees and only $128 remained in his escrow account. By letter dated February 17, 2011, Attorney Michaud acknowledged the cancellation of the Connecticut resident’s “debt settlement representation” with Respondent. |
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11. |
On February 20, 2011, the Connecticut resident complained to the Statewide Grievance Committee and the Connecticut Office of Chief Disciplinary Counsel. On April 27, 2011, the Middlesex Judicial District Grievance Panel (“Panel”) issued a Finding of Probable Cause concerning such complaint against Attorney Michaud, complaint #11-0136. The Panel found probable cause to support the following findings of fact:
Debt resolution, debt negotiation and debt settlement are regulated activities in CT (see C.G.S. Section 36a-655, et seq.) that requires a license from the Banking Commissioner. . . . [Respondent] has no such license. Attorneys are exempted from this requirement. So as to avoid this licensing obligation, . . . [Attorney Michaud] allowed herself to [be] used as a front for . . . [Respondent’s] out-of-state boiler room(s) operation – where the real work . . . was done. The fees charged by . . . [Respondent] are unreasonable and excessive, and the ‘”work”’ done by it of little value . . . [the Complainant] is in a worse financial position for having engaged . . . [Respondent] then had he simply paid the same money to his three creditors. |
| 12. | On October 4, 2011, the Office of Chief Disciplinary Counsel filed a Motion to Dismiss Complaint #11-0136, citing various reasons, including a pending agreement between the Office of Chief Disciplinary Counsel and Respondent. On October 5, 2011, the Office of Chief Disciplinary Counsel entered into an Agreement with Respondent, and on November 8, 2011, the Statewide Grievance Committee dismissed Complaint #11-0136. |
| 13. | Nationwide, Respondent’s debt negotiation activities have been the subject of numerous complaints and litigation by consumers, see e.g., Broyles v. Persels, 1:12-cv-00294-CAP; Bronzich v. Persels, 2011 U.S. Dist. LEXIS 57327 (May 27, 2011); and Kinderknecht v. Persels, 2012 Bankr. LEXIS 1671 (Bankr. D. Kan., Apr. 13, 2012). These complaints allege that Respondent associates with local attorneys in order to assert the attorney exemption within the debt negotiation licensing statutory schemes of several states. |
| 14. | On March 21, 2012, Respondent filed a Petition for Declaratory Ruling with the Commissioner concerning the applicability of the attorney exemption provided in Section 36a-671c(1) of the 2012 Supplement to the General Statutes to Respondent’s debt negotiation activities in Connecticut. |
| 15. | On September 11, 2012, the Commissioner issued a Declaratory Ruling, which found that the exemption in Section 36a-671c(1) of the 2012 Supplement to the General Statutes only applies to “a natural person who: (a) is an attorney admitted to the practice of law in Connecticut; and (b) is not retained to perform, and does not perform, debt negotiation services, as defined in Section 36a-671 of the 2012 Supplement to the General Statutes, as the primary purpose of the representation, which shall be determined on a case-by-case basis in light of all of the facts and circumstances”, and that “[b]ased on the information set forth in its Petition, and for the reasons set forth . . . [in the Petition], Persels would require licensure”. On October 3, 2012, Respondent filed an appeal to such ruling in Superior Court for the Judicial District of New Britain. |
| 16. |
At no time relevant hereto has Respondent been licensed to engage in debt negotiation in this state, nor does Respondent qualify for an exemption from such licensure.
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III. STATUTORY BASIS FOR ORDER TO CEASE
AND DESIST AND IMPOSITION OF CIVIL PENALTY
Section 36a-671 of the Connecticut General Statutes, in effect prior to October 1, 2011, provided, in pertinent part, that:
(a) As used in this section and sections 36a-671a to 36a-671d, inclusive, (1) “debt negotiation” means, for or with the expectation of a fee, commission or other valuable consideration, assisting a debtor in negotiating or attempting to negotiate on behalf of a debtor the terms of a debtor’s obligations with one or more mortgagees or creditors of the debtor; . . . (2) “debtor” means any individual who has incurred indebtedness or owes a debt for personal, family or household purposes . . . .
(b) No person shall engage or offer to engage in debt negotiation in this state without a license issued under this section for each location where debt negotiation will be conducted. . . . A person is engaging in debt negotiation in this state if such person: . . . . (2) has a place of business located outside of this state and the debtor is a resident of this state who negotiates or agrees to the terms of the services contract in person, by mail, by telephone or via the Internet while physically present in this state . . . .
Section 36a-671(b) of the 2012 Supplement to the General Statutes, which incorporates Section 40 of Public Act 11-216, effective October 1, 2011, provides, in pertinent part, that:
No person shall engage or offer to engage in debt negotiation in this state without a license issued under this section for each location where debt negotiation will be conducted. . . . A person is engaging in debt negotiation in this state if such person: . . . (2) has a place of business located outside of this state and the debtor is a resident of this state who negotiates or agrees to the terms of the services in person, by mail, by telephone or via the Internet . . . .
Section 36a-671a(b) of the 2012 Supplement to the General Statutes provides, in pertinent part, that:
Whenever it appears to the commissioner that any person has violated, is violating or is about to violate the provisions of sections 36a-671 to 36a-671e, inclusive, . . . the commissioner may take action against such person . . . in accordance with sections 36a-50 and 36a-52. For purposes of sections 36a-671 to 36a-671e, inclusive, each engagement and each offer to engage in debt negotiation shall constitute a separate violation.
Respondent’s engaging in debt negotiation in this state without obtaining the required license, as more fully described in paragraphs 1 through 16, inclusive, of the Matters Asserted, constitutes violations of Section 36a-671(b) of the Connecticut General Statutes in effect prior to October 1, 2011, and Section 36a-671(b) of the 2012 Supplement to the General Statutes. Such violations form the basis to issue an order to cease and desist pursuant to Section 36a-671a(b) of the 2012 Supplement to the General Statutes and Section 36a-52(a) of the Connecticut General Statutes, issue an order to make restitution pursuant to Section 36a-671a(b) of the 2012 Supplement to the General Statutes and Section 36a-50(c) of the Connecticut General Statutes, as amended, and impose a civil penalty pursuant to Section 36a-671a(b) of the 2012 Supplement to the General Statutes and Section 36a-50(a) of the Connecticut General Statutes, as amended. Section 36a-50(a) of the Connecticut General Statutes, as amended, authorizes the Commissioner to impose a civil penalty upon Respondent in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation.
IV. FINDING AND STATUTORY BASIS FOR
TEMPORARY ORDER TO CEASE AND DESIST
The Commissioner finds that public welfare requires immediate action to issue a temporary order requiring Respondent to cease and desist from violating Section 36a-671(b) of the Connecticut General Statutes in effect prior to October 1, 2011, and Section 36a-671(b) of the 2012 Supplement to the General Statutes, and to take such action as set forth herein to effectuate the purposes of Section 36a-52(b) of the Connecticut General Statutes in that the interests of Connecticut residents are being materially prejudiced by Respondent’s engaging in debt negotiation in Connecticut while not being duly licensed and receiving monies in excess of the Schedule of Maximum Fees from at least three hundred (300) Connecticut residents who are already struggling financially. Moreover, Respondent’s claim that it is a law firm providing legal services through Connecticut licensed attorneys is a farce, contrived solely to avoid Connecticut’s debt negotiation licensing requirements and corresponding fee restrictions.
V. TEMPORARY ORDER TO CEASE AND DESIST, ORDER TO MAKE RESTITUTION,
NOTICE OF INTENT TO ISSUE ORDER TO CEASE AND DESIST,
NOTICE OF INTENT TO IMPOSE CIVIL PENALTY
AND NOTICE OF RIGHT TO HEARING
WHEREAS, the Commissioner has reason to believe that Respondent has engaged in acts or conduct which forms the basis to issue an order to cease and desist pursuant to Section 36a-671a(b) of the 2012 Supplement to the General Statutes and Section 36a-52(a) of the Connecticut General Statutes, issue an order to make restitution pursuant to Section 36a-671a(b) of the 2012 Supplement to the General Statutes and Section 36a-50(c) of the Connecticut General Statutes, as amended, and impose a civil penalty pursuant to Section 36a-671a(b) of the 2012 Supplement to the General Statutes and Section 36a-50(a) of the Connecticut to the General Statutes, as amended;
AND WHEREAS, the Commissioner has made the finding required under Section 36a-52(b) of the Connecticut General Statutes.
THE COMMISSIONER THEREFORE ORDERS, pursuant to the authority granted in Section 36a-52(b) of the Connecticut General Statutes, that Persels & Associates, LLC immediately CEASE AND DESIST from violating Section 36a-671(b) of the Connecticut General Statutes in effect prior to October 1, 2011, and Section 36a-671(b) of the 2012 Supplement to the General Statutes. This Temporary Order shall become effective upon receipt by Persels & Associates, LLC, and, unless set aside or modified by a court, shall remain in effect until the effective date of a permanent order or dismissal of the matters asserted in this Temporary Order.
THE COMMISSIONER FURTHER ORDERS, pursuant to Section 36a-17 of the 2012 Supplement to the General Statutes, as amended, and Section 36a-52(b) of the Connecticut General Statutes, that: Not later than fourteen (14) days from receipt of this Temporary Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing, Persels & Associates, LLC shall provide to Carmine Costa, Director, Consumer Credit Division, Department of Banking, 260 Constitution Plaza, Hartford, Connecticut 06103-1800, or carmine.costa@ct.gov, a list of all Connecticut residents with whom Persels & Associates, LLC has entered into agreements for debt negotiation services on and after October 1, 2009. Such submission shall include: (a) a copy of each agreement, and (b) a list of each debtor’s name and address and full itemization of each debtor’s payments made pursuant to the agreement, specifying the dates, amounts and to whom such payments were made.
THE COMMISSIONER FURTHER ORDERS, pursuant to Section 36a-50(c) of the Connecticut General Statutes, as amended, that Persels & Associates, LLC MAKE RESTITUTION of any sums obtained as a result of Persels & Associates, LLC violating Section 36a-671(b) of the Connecticut General Statutes in effect prior to October 1, 2011, and Section 36a-671(b) of the 2012 Supplement to the General Statutes, plus interest at the legal rate set forth in Section 37-1 of the Connecticut General Statutes. Specifically, the Commissioner ORDERS that: Not later than forty-five (45) days from the date this Order to Make Restitution becomes permanent, Persels & Associates, LLC shall:
| 1. |
Repay each Connecticut resident who entered into an agreement for debt negotiation services with Persels & Associates, LLC on and after October 1, 2009, any fees paid by such Connecticut resident to Persels & Associates, LLC, plus interest. Payments shall be made by cashier’s check, certified check or money order; and |
| 2. |
Provide to Carmine Costa, Director, Consumer Credit Division, Department of Banking, 260 Constitution Plaza, Hartford, Connecticut 06103-1800, or carmine.costa@ct.gov, evidence of such repayments. |
NOW THEREFORE, notice is hereby given to Respondent that the Commissioner intends to issue an order requiring Respondent to CEASE AND DESIST from violating Section 36a-671(b) of the Connecticut General Statutes in effect prior to October 1, 2011, and Section 36a-671(b) of the 2012 Supplement to the General Statutes, and impose a CIVIL PENALTY upon Respondent as set forth herein, subject to Respondent’s right to a hearing on the allegations set forth above.
A hearing will be granted to Respondent if a written request for a hearing is received by the Department of Banking, Consumer Credit Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800 within fourteen (14) days following Respondent’s receipt of this Temporary Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing as set forth in Section 36a-52(a) of the Connecticut General Statutes and subsections (a) and (c) of Section 36a-50 of the Connecticut General Statutes, as amended. This Temporary Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing shall be deemed received on the earlier of the date of actual receipt, or seven days after mailing or sending. The enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address. If Respondent will not be represented by an attorney at the hearing, please complete the Appearance and Request for Hearing Form as “pro se”. Once a written request for a hearing is received, the Commissioner may issue a notification of hearing and designation of hearing officer that acknowledges receipt of a request for a hearing, designates a hearing officer and sets the date of the hearing in accordance with Section 4-177 of the Connecticut General Statutes and Section 36a-1-21 of the Regulations of Connecticut State Agencies. If a hearing is requested, the hearing will be held on January 8, 2013, at 10 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
The hearing will be held in accordance with the provisions of Chapter 54 of the Connecticut General Statutes, unless Respondent fails to appear at the requested hearing. At such hearing, Respondent will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner.
If Respondent does not request a hearing within the time period prescribed or fails to appear at any hearing, the Order to Make Restitution shall remain in effect and become permanent against Respondent, and the Commissioner will issue an order that Respondent cease and desist from violating Section 36a-671(b) of the Connecticut General Statutes in effect prior to October 1, 2011, and Section 36a-671(b) of the 2012 Supplement to the General Statutes, and may order a civil penalty in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation be imposed upon Respondent.
So ordered at Hartford, Connecticut
this 2nd of November 2012. ________/s/_________
Howard F. Pitkin
Banking Commissioner
CERTIFICATION
I hereby certify that on this 2nd day of November 2012, the foregoing Temporary Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing was sent by certified mail, return receipt requested, to Persels & Associates, LLC, 29 W. Susquehanna Avenue, Suite 400, Towson, Maryland 21204, certified mail no. 70112000000247315904; Persels & Associates, LLC, Attention: Neil J. Ruther, Resident Agent, 29 W. Susquehanna Avenue, Suite 400, Towson, Maryland 21204, certified mail no. 70112000000247315911; Persels & Associates, LLC, P.O. Box 6369, Columbia, Maryland 21045, certified mail no. 70112000000247315928; and Robert M. Frost, Jr., Esq., Frost Bussert, LLC, 129 Church Street, Suite 226, New Haven, Connecticut 06510, certified mail no. 70112000000247315997.
________/s/_________
Stacey L. Serrano
Prosecuting Attorney