Lovick v. Ritemoney Ltd.

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
FIFTH CIRCUIT July 14, 2004

Charles R. Fulbruge III
Clerk
No. 03-20917

BETTY R. LOVICK, on behalf of herself
and all others similarly situated,

Plaintiff-Appellant,

versus

RITEMONEY LTD.; SNM INC.; CPCWA COMPANY LTD.,
doing business as Power Financial; GE & CE LLC,

Defendant-Appellee.

Appeal from the United States District Court
for the Southern District of Texas

Before JOLLY, JONES, and BARKSDALE, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

Betty R. Lovick’s putative class action claims a RICO

violation, premised on the collection of a claimed unlawful

(usurious) debt. The action was dismissed under Federal Rule of

Civil Procedure 12(b)(6) for failure to state a claim upon which

relief can be granted. Lovick claims the fee charged by an

automobile title loan broker amounts to disguised interest that,

when attributed to the lender, causes the loan to be usurious. The

Credit Services Organization Act (CSOA), TEX. FIN. CODE § 393 et

seq., permits brokers, however, to engage in the activities alleged

in the complaint without attributing those fees to lenders. None
of Lovick’s allegations involve activities proscribed by either

CSOA or Texas usury law, TEX. FIN. CODE § 301.001 et seq.

Accordingly, she cannot state a claim for usury. As a result, her

RICO claim fails as well. AFFIRMED.

I.

As alleged in her operative second amended complaint, in

responding in January 2002 to an advertisement for loans secured by

automobile title, Lovick requested a $2000 title loan from CPCWA

Company, Ltd. (d/b/a “Power Financial” and “Texas Jewelry &

Financial Services”). The loan was to originate from Ritemoney

Ltd. as lender, with CPCWA as broker. Lovick signed with Ritemoney

a Loan Disclosure, Promissory Note and Security Agreement (the

Note), which provided, inter alia: the amount financed was $2013

($2000 to Lovick and $13 filing fee for asserting a lien on her

vehicle); Lovick would pay a $1500 fee to CPCWA for “loan brokerage

or other credit services”; and, for state law purposes, the

interest rate was ten percent. (The federal truth-in-lending

disclosures, reflecting a much higher rate of approximately 131

percent, are not in issue. Lovick does not present a claim under

the Truth in Lending Act, 15 U.S.C. § 1606(a)(1)(A).)

The Note stated, in relevant part:

Payment of third-party fees: In connection
with any third-party fees such as fees for
loan brokerage or other credit services, I
acknowledge the following: I separately
contracted with another company or person to
receive brokerage or other credit services and

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 agreed to pay for those services; I am
responsible for such fees; I am voluntarily
using part of this loan to pay for those fees;
and I understand that this loan is made by
lender [Ritemoney] under Section 302.001 of
the Texas Finance Code at a rate of interest
not greater than 10% per annum and that a fee
paid to a third-person [CPCWA] for arranging
this loan (though required to be treated as
finance charge for purposes of federal law
disclosures) is for a separate service and not
interest for purposes of Texas law.

(Emphasis added.) Upon signing the Note, Lovick received a $2000

check, which she cashed at the CPCWA office. Subsequently, she

made all of the required payments to, and through, CPCWA.

In 2003, Lovick filed her complaint against Ritemoney, CPCWA,

and their respective general partners (SNM, Inc. and GE & CE

L.L.C.) (collectively, defendants), claiming a Racketeer Influenced

and Corrupt Organizations Act (RICO) violation, premised on

collection of an unlawful (usurious) debt. 18 U.S.C. § 1962(c);

TEX. FIN. CODE §§ 342.004, 342.005, 342.051, and 349.403.

Essentially, Lovick claimed CPCWA’s $1500 fee was “disguised

interest” attributable to Ritemoney; when combined with the ten

percent interest rate charged by Ritemoney, the fee caused interest

exceeding the ten percent authorized by Texas law. See TEX. FIN.

CODE § 342.004(a). This putative class action was on behalf of all

persons who signed a Note with Ritemoney from 1 September 2002

through the 2003 filing date of this action.

After Lovick filed an amended complaint, defendants moved to

dismiss under Rule 12(b)(6), claiming, inter alia, that Lovick

3
failed to state a claim for usury and, therefore, for the RICO

claim premised on it. The district court agreed, holding that,

because “no improper relationship is presented by the facts in

[Lovick’s] pleadings [, the brokerage fee cannot be usurious

interest, and] no cause of action is alleged”. It granted Lovick

30 days, however, to plead a factual basis for an improper

relationship among defendants. After the second amended complaint

was filed, the court ruled that Lovick still failed to state a

claim and dismissed this action.

II.

“[A] complaint should not be dismissed [under Rule 12(b)(6)]

for failure to state a claim unless it appears beyond doubt that

the plaintiff can prove no set of facts in support of his claim

which would entitle him to relief”. Ramming v. United States, 281

F.3d 158, 161 (5th Cir. 2001) (quoting Conley v. Gibson, 355 U.S.

41, 45-46 (1957)). Such a dismissal is reviewed de novo. E.g.,

Herrmann Holdings Ltd. v. Lucent Tech. Inc., 302 F.3d 552, 557-58

(5th Cir. 2002). For that review, the complaint is construed in

the light most favorable to plaintiff, accepting as true all well-

pleaded factual allegations and drawing all reasonable inferences

in plaintiff’s favor. Id. at 558. On the other hand, “we may not

rely upon conclusional allegations or legal conclusions disguised

as factual allegations”. Jeanmarie v. United States, 242 F.3d 600,

602-03 (5th Cir. 2001).

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 Lovick contends the district court erroneously applied Federal

Rule of Civil Procedure 9(b)'s heightened pleading standard,

applicable to allegations of fraud, instead of Rule 8(a)’s notice

pleading standard. Rule 8(a) does not require pleading specific

facts in support of each element of plaintiff’s prima facie case;

instead, plaintiff must “give the defendant fair notice of what the

plaintiff’s claim is and the grounds upon which it rests”.

Swierkiewicz v. Sorema N.A., 534 U.S. 506, 507 (2002) (quoting

Conley, 355 U.S. at 47). It appears that in dismissing the

operative second amended complaint, the district court applied Rule

8(a), not Rule 9(b). See Lovick v. Ritemoney, No. H-03-0218 (Order

of Dismissal, 28 August 2003) (“The Court finds and holds that the

plaintiff has failed to state a cause of action and the facts as

pled do not support the view that a cause of action can be

asserted.”). In any event, Rule 12(b)(6) dismissals are reviewed

de novo; in so doing, we will apply Rule 8(a).

For the claimed usury, Lovick alleges: (1) CPCWA handled all

the usual tasks of the lender, including arranging advertising,

credit review, collateral inspection, approval decision, paperwork

preparation, issuance and cashing of checks, collection of payment,

and deciding when to repossess collateral, and, in this way,

Ritemoney shifted substantially all of its overhead to CPCWA; (2)

CPCWA acted as an agent of, or joint participant with, Ritemoney,

as evidenced by CPCWA’s brokering all of its title loans to

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Ritemoney as lender and Ritemoney’s making all of its title loans

through CPCWA, and CPCWA was authorized to act as Ritemoney’s agent

for the purposes of disbursing cash advances by signing checks on

Ritemoney’s account and collecting loan payments; (3) because all

borrowers were expected to pay a brokerage fee to CPCWA to obtain

a loan from Ritemoney, payment of the fee was effectively a

prerequisite for a Ritemoney loan, and Ritemoney was aware from the

Note and payment of the fees from loan proceeds that borrowers were

expected to pay those fees to obtain a loan; and (4) these facts

demonstrate a scheme both to evade the ten percent Texas usury

ceiling for unlicensed lenders and to falsely suggest that CPCWA is

separate from Ritemoney.

In the light of these allegations, Lovick contends: this

alleged relationship between Ritemoney, as lender, and CPCWA, as

broker, is sufficient under Texas law to impute CPCWA’s brokerage

fee to Ritemoney; and, because Ritemoney is already charging ten

percent, the addition of the fee raises the interest rate above the

ten percent limit.

Interest is compensation “for the use, forbearance, or

detention of money”. TEX. FIN. CODE § 301.002(a)(4). In the absence

of other law, interest greater than ten percent is usurious. TEX.

FIN. CODE §§ 302.001(b); 342.004(a). Under Texas law, the elements

for a usury claim are: “(1) a loan of money; (2) an absolute

obligation to repay the principal; and (3) the exaction of a

greater compensation than allowed by law for the use of the money

6
by the borrower”. First Bank v. Tony’s Tortilla Factory, 877

S.W.2d 285, 287 (Tex. 1994). The third element for usury is at

issue: whether the allegations are sufficient to withstand a Rule

12(b)(6) challenge on whether the fee paid to CPCWA is interest.

To say the least, a $1500 fee for a $2000 loan is more than

questionable. And, Texas caselaw describes circumstances under

which brokerage fees may be attributed to the lender as disguised

interest for purposes of assessing usury. That caselaw, however,

has been supplanted by Texas usury statutes, see TEX. FIN. CODE §

301.001 et seq., and the Credit Services Organization Act (CSOA),

enacted in 1987, see TEX. FIN. CODE § 393. These statutes govern

interest and the conditions under which a broker may assess fees.

First, we examine Lovick’s allegations under pre-CSOA caselaw;

then, we assess their viability under the usury statutes and CSOA.

Because these statutes permit the alleged activities by CPCWA, its

fee is not usurious interest.

A.

Lenders can violate the usury laws by charging borrower fees

that constitute “disguised interest”. E.g., First USA Mgmt., Inc.

v. Esmond, 960 S.W.2d 625, 627 (Tex. 1997). Whether a fee is of

that nature turns, of course, on the substance of the transaction.

Id. If the fee is supported by “separate and additional

consideration apart from the lending of money [, it] is not

7
interest and cannot be the basis of usury”. Tex. Commerce Bank-

Arlington v. Goldring, 665 S.W.2d 103, 104 (Tex. 1984).

Lovick maintains that the brokerage fee paid CPCWA is

attributable to Ritemoney because: (1) CPCWA is Ritemoney’s

“general agent” or “joint participant”; (2) Ritemoney shifted its

overhead to CPCWA, and lender overhead is treated as interest; and

(3) CPCWA’s having performed most of the tasks ordinarily performed

by the lender, CPCWA is not a bona fide third party.

1.

Texas courts have long recognized that loan brokers may charge

a fee for their services; the fee is not generally considered

interest for usury purposes.

It is recognized ... that charges made to the
borrower by the lender’s special agent for
special services such as legal work in
preparing documents, inspection of the
property to be pledged as security and
attending to the details of closing the loan
are legitimate charges against the lender and
will not taint the contract with usury.

Morris v. Miglicco, 468 S.W.2d 517, 519 (Tex. Civ. App. - Houston

1971, writ ref’d n.r.e.) (emphasis added) (citing Nevels v. Harris,

102 S.W.2d 1046 (Tex. 1937); Sapphire Homes, Inc. v. Gilbert, 426

S.W.2d 278 (Tex. Civ. App. - Dallas 1968, writ ref’d n.r.e.); Dewey

v. American National Bank, 382 S.W.2d 524 (Tex. Civ. App. -

Amarillo 1964, writ ref’d n.r.e.)). If the brokerage fee is not

8
supported by separate and additional consideration, it may be

considered interest, subject to usury laws.

The general rule is that if a lender, or the
lender’s agent with the lender’s knowledge or
ratification, requires the borrower to pay a
sum of money designated a brokerage fee to the
lender or to the lender’s agents, such payment
will be considered a payment for the use by
the borrower of the lender’s money. If the
sum so paid, together with the interest paid
as provided in the loan contract, exceeds the
lawful rate of interest the contract will be
considered as providing for usurious interest.

Morris, 468 S.W.2d at 519 (citing Adleson v. B.F. Dittmar Co., 80

S.W.2d 939 (Tex. Com. App. 1935)). Under pre-CSOA caselaw, the

effect of this rule is to treat fees paid to third parties, if they

constitute a condition imposed by the lender (or with the lender’s

knowledge) on the borrower for the loan, as fees paid directly to

the lender. Lovick relies on this general agency theory in

attributing the brokerage fee to Ritemoney. See also Federal

Mortgage Co. v. State Nat. Bank of Corsicana, 254 S.W. 1002, 1005

(Tex. Civ. App. - Beaumont 1923, writ dism’d) (because payment of

brokerage fee to lender’s general agent is effectively payment to

lender for making loan, fee may be considered usurious interest).

Along this line, Lovick notes that several courts have

recognized an extensive or exclusive relationship between a broker

and lender as evidencing that the broker is acting as the lender’s

agent. See In the Matter of Dukes, 24 B.R. 404 (Bkrtcy. Mich.

1982); see also Dickey v. Phoenix Finance Co., 104 S.W.2d 806, 808

9
(Ark. 1937). Further, when a lender has knowledge of an agent’s

fee, the lender is deemed to have authorized it. See Dodson v.

Peck, 75 S.W.2d 461, 464 (Tex. Civ. App. - Amarillo 1934, writ

denied).

The primary allegation at issue is: CPCWA is either a general

agent of, or a joint participant with Ritemoney in, Ritemoney’s

automobile title loan business. As discussed, the supporting

allegations are: CPCWA and Ritemoney enjoy an exclusive

relationship, with Ritemoney extending title loans only through

CPCWA and CPCWA brokering title loans originating only from

Ritemoney; CPCWA grants title loans only to borrowers paying the

required brokerage fee; because Ritemoney was aware of the language

in the Note referencing this fee and must have been aware that the

fee was paid from funds loaned to the borrower, Ritemoney had

knowledge that payment of the fee was a prerequisite to receiving

a title loan; and this shows the alleged general agency, or joint

participant relationship, between Ritemoney and CPCWA.

On the other hand, there are no allegations that CPCWA, not

Ritemoney, selected the criteria for authorizing loans; instead,

there are allegations that CPCWA applied certain criteria in making

authorization decisions. This relationship (following criteria set

by Ritemoney) is consistent with special agency. Texas law has

long recognized that such relationships do not transform reasonable

fees for broker services into interest attributable to lenders for

10
the purposes of assessing usury. See, e.g., Hughes v. Security

Building & Loan Ass’n, 62 S.W.2d 219 (Tex. Civ. App. 1933) (fee

charged borrower by agent having only special or limited authority,

as opposed to general authority, not considered interest and may

not be attributed to lender for purposes of determining usury). In

this regard, “[t]he charge made by [the broker] was for services

rendered in connection with the loan. The charge thus made and

paid ... regardless of its reasonableness or not, cannot form the

basis for a usury penalty”. Crow v. Home Savings Ass’n, 522 S.W.2d

457, 460 (Tex. 1975).

As noted, Lovick’s claim rests on pre-CSOA caselaw; moreover,

the claim does not consider the line of Texas cases requiring the

lender to benefit from the broker’s fee in some way that is not

incidental. As held in Commerce Sav. Ass’n of Brazoria County v.

GCE Mgmt. Co., 539 S.W.2d 71, 79-80 (Tex. Civ. App. - Houston (1st

Dist.) 1976), modified by 543 S.W.2d 862 (Tex. 1976), for a third

party fee to be considered interest, the borrower must show: (1)

the lender received some benefit from the additional fee; and (2)

the additional fee paid to the third party “was a subterfuge to

evade the usury statute”. Id. at 80. A benefit could include the

lender’s “receiv[ing] any part of such fees”, but “incidental

benefit[s]” to the lender are insufficient. Id.; see also Groves

v. Nat’l Loan & Investment Co. of Detroit, Mich., 102 S.W.2d 508,

513 (Tex. Civ. App. - Ft. Worth 1937) (retention by lender’s agent

11
of part of loan amount did not entitle borrower to cancel

obligation as usurious unless borrower showed: retention was with

lender’s knowledge and consent; and lender received benefit of

retention). Lovick has failed to allege an incidental benefit to

Ritemoney, much less any direct benefit, such as the flow of all,

or part, of the brokerage fee from CPCWA to Ritemoney. At most,

Lovick’s allegations imply a benefit to Ritemoney through its

shifting some of its exposure to CPCWA. This is insufficient to

demonstrate the requisite lender benefit for general agency.

2.

Lovick also alleges Ritemoney shifted its overhead to CPCWA.

Under Texas law, fees charged by a lender for ordinary overhead

constitute interest. See, e.g., Trinity Fire Ins. Co. v. Kerrville

Hotel Co., 103 S.W.2d 121, 125 (Tex. 1937); Nicewander, Sheen &

West, TEXAS USURY LAW HANDBOOK § 4:3 (1997) (“any charges for services

normally incident to the making of loans, which are charged to the

borrower for the lender’s overhead expenses, are deemed interest

for the purpose of determining usury”). Lovick alleges that

Ritemoney shifted to CPCWA all of Ritemoney’s responsibilities

normally understood as overhead. Therefore, according to Lovick,

CPCWA cannot contend that fees charged in consideration for these

services are not interest. Lovick maintains: even though the

services are provided by the broker, they are effectively lender

overhead. Indeed, Lovick contends this overhead-shifting to the

12
broker is precisely the sort of “device, subterfuge, or pretense”

proscribed by TEX. FIN. CODE § 342.051(b).

Lovick cites no Texas authority in support of her contention

that fees for broker services may be attributed to the lender to

the extent those services could have been part of a lender’s

overhead in a non-brokered transaction. To the contrary, these are

separate services, in consideration for which the broker may charge

a reasonable fee. Lovick points to Mims v. Fidelity Funding, Inc.,

275 B.R. 789 (Bkrtcy. N.D. Tex. 2002), aff’d in part and rev’d in

part, 307 B.R. 849 (N.D. Tex. 2002), which noted that allowing the

lender to escape any potential usury penalties by “farming out its

overhead, which would otherwise be interest, to a third party, and

having the borrower pay that agent directly ... would provide

lenders with an avenue to game the system and defeat the true

intent of the usury statutes”. Id. at 800 n.13. On appeal,

however, the district court rejected this portion of the holding,

ruling instead that fees paid to third parties are not interest.

Mims, 307 B.R. 849. The district court agreed with the bankruptcy

court only with respect to certain fees that were retained by the

lender (again, there is no allegation that Ritemoney received part

of the brokerage fee paid to CPCWA) and for which the lender would

not show separate and additional consideration for the use,

forbearance, or detention of money. Id. at 856-58. Lovick cites

no other authority for her overhead-shifting theory of recovery.

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 3.

Finally, Lovick contends that a broker’s performing many, if

not all, of the tasks ordinarily performed by a lender evidences

that the broker is not a bona fide third party. General

Southwestern Corp. v. State of Texas, 333 S.W.2d 164, 166-68 (Tex.

Civ. App. - Houston 1960, writ ref’d n.r.e.); Donoghue v. State,

211 S.W.2d 623, 628-29 (Tex. Civ. App. - Austin 1948, writ ref’d

n.r.e.). Again, the cited Texas caselaw pre-dates CSOA (enacted in

1987).

In General Southwestern, as here, brokers solicited customers,

performed credit checks, arranged for an agreement and note to be

signed, and made an initial advance and collected payments. 333

S.W.2d at 165-67. In upholding a temporary injunction against

making usurious loans, the court concluded that the proof at the

injunction hearing indicated a closely integrated operation that

included all of the brokering entities, as well as the two

corporations holding the notes. Id. at 168.

Similarly, in Donoghue, the broker solicited borrowers,

arranged for the execution of an agreement and note, determined

security was adequate, and handled collection. Donoghue, 211

S.W.2d at 624-25. The court held: although there was an

independent broker, the brokerage fee was a form of interest that

rendered the loans usurious because, as the court found, the

14
operation was a joint venture between the broker and lender. Id.

at 629.

As noted, Lovick rests this premise — that CPCWA is not a bona

fide third party — on only two, pre-CSOA cases from Texas

intermediate courts. She offers no explanation for her inability

to identify more recent Texas authority.

B.

This lack of recent, relevant authority is because the Texas

Legislature has addressed these and other issues through usury

statutes and, more recently, CSOA. The usury statutes originated

in Act of 23 May 1967, 60th Leg., R.S., ch. 274, 1967 TEX. GEN. LAWS

608-660, and are contained in Title 4 of the Texas Financial Code.

TEX. FIN. CODE § 301.001 et seq. When enacted in 1987, CSOA was in

former Chapter 18 of the Texas Business and Commerce Code, Acts

1987, 70th Leg., ch. 764, § 1; it became part of the Texas

Financial Code. TEX. FIN. CODE § 393. (At least 31 States and the

District of Columbia have credit services organization acts similar

to the one enacted by Texas. See, e.g., ARIZ. REV. STAT. § 44-1701

et seq.; ARK. CODE § 4-91-101 et seq.; CAL. CIV. CODE § 1789.11 et

seq.; COLO. REV. STAT. § 12-14.5-101 et seq.)

The codification of Texas usury law and the enactment of CSOA

governing loan brokers as credit services organizations (CSOs) has

overruled by implication those cases interpreting brokerage fees of

the type alleged here as potentially usurious interest. Again,

15
Lovick cites no post-enactment cases. In the light of Texas’ more

recent usury statutes and CSOA, the complaint fails to state a

claim.

CSOA authorizes a CSO to charge a “credit service fee” by

complying with certain requirements, such as: registration, §

393.101; a surety bond, §§ 393.401 - 393.407; disclosures, §

393.105; and notice of cancellation, § 393.202 (contract may be

canceled within three days of date of transaction). See TEX. FIN.

CODE § 393 et seq. A fee may not be charged if any of these

requirements is not met, nor may one be charged merely for

referring a customer to a retail seller of credit. TEX. FIN. CODE

§ 393.303. CSOA describes a CSO as follows: an entity that

provides that, for valuable consideration, it will, among other

things, “obtain[] an extension of consumer credit for a consumer”.

TEX. FIN. CODE § 393.001(3)(B). CSOA does not prescribe the amount

that may be charged by a CSO for its services. Under the facts

alleged, CPCWA is a valid CSO; Lovick has not alleged that CPCWA

failed to comply with any of CSOA’s provisions.

While CSOA regulates CSOs (such as brokers), Texas’ usury

statutes regulate lenders. Those statutes differentiate between

loans charging interest rates of ten percent or less, which are

unregulated, see TEX. FIN. CODE § 302.001 et seq., and those charging

more than ten percent, see TEX. FIN. CODE § 342.001 et seq. As

stated in the Note, CPCWA is a third party providing credit

16
services, and Ritemoney is a lender charging ten percent interest

under Texas Financial Code Section 302.001.

The usury statutes and CSOA work in harmony, permitting a CSO

to charge a brokerage fee in connection with its services. Indeed,

CSOA’s proscribing a CSO from charging a fee for simply referring

a customer to a lender, TEX. FIN. CODE § 393.303, cuts against

Lovick’s contentions regarding CPCWA’s many services. Lovick

alleges those services imply CPCWA is not a bona fide third party,

or at least that it is performing tasks ordinarily understood as

part of the lender’s overhead. But, under CSOA, CSOs are expected

to provide valuable services for their fee and are penalized if

they provide too few services (not too many). Id.

It goes without saying that, when statutory language is

unambiguous, we apply the “plain and common meaning of the words

and terms used”; a “court may not strain on policy grounds to

manufacture a [modification] of the statutory language to achieve

a result obviously not intended by the legislature”. Moreno v.

Sterling Drug, Inc., 787 S.W.2d 348, 352 n.2 (Tex. 1990) (quoting

Morano v. St. Francis Hospital, 420 N.Y.S.2d 92, 95 (N.Y.Sup.Ct.

1979)). Sections 302 and 393 of the Texas Financial Code are

unambiguous. Section 302 permits a lender to charge an interest

rate of ten percent or lower; § 393, a CSO to charge a brokerage

fee for arranging a loan.

17
 The allegations in the operative second amended complaint

confirm that CPCWA charged a credit services fee and that Ritemoney

made a ten percent loan. All of the services alleged to have been

provided by CPCWA are consideration for its fee, and there are no

allegations of non-conformity with the requirements for valid CSO

status as provided in § 393. The Texas Legislature has not

restricted the amount of a CSO service fee in proportion to the

services provided; we cannot substitute our judgment. In this

regard, we are more than well aware that a $1500 fee for a $2000

loan appears quite excessive. Ameliorating this acute concern are

two factors. First, Lovick’s allegations do not provide any data

for factors supporting or refuting why the amount is, or is not,

reasonable. Second, we obviously cannot rule on issues on the

basis of such concern; we are compelled to follow the law — here,

CSOA.

Lovick, relying on pre-CSOA precedent, tries to blur the

distinction between §§ 302 (governing unregulated loans charging

ten percent interest or less) and 342 (governing regulated loans

charging greater than ten percent), while ignoring § 393 (governing

brokerage fees for CSOs). She does not cite any Texas cases that

question, or even mention, the clear language of §§ 302 and 393,

and their harmonious relationship. Nor does she cite cases from

other jurisdictions that have enacted credit services organization

statutes; yet those statutes have been in effect for many years.

“[U]nder Texas law, there is a specific presumption against a

18
finding of usurious interest”. C.C. Port, Ltd. v. Davis-Penn

Mortgage Co., 61 F.3d 288, 290 (5th Cir. 1995) (affirming Rule

12(b)(6) dismissal of action against lender alleging prepayment

premium was usurious interest). Penal statutes, such as those for

usury, are strictly construed under Texas law; recovery of a

penalty must fit within the statutes’ terms. E.g., Hight v. Jim

Bass Ford, Inc., 552 S.W.2d 490, 491 (Tex. Civ. App. - Austin 1977)

(holding “doubt as to the intention of the Legislature to punish

the conduct of the party should be resolved in favor of the

defendant ... [b]ecause the provisions of the Consumer Credit Code

are penal in nature ... [and] are to be strictly construed”).

Lovick contends that CSOA’s silence on whether brokerage fees

may be considered disguised interest under certain broker/lender

relationships suggests that we should not read into CSOA an

endorsement of such fees. Instead, according to Lovick, CSOA

provides additional borrower-protection, beyond that found in prior

Texas cases holding some third party fees are disguised interest.

She also contends that interpreting CSOA to permit these types of

brokerage fees would amount to a partial repeal by implication of

§ 342.051(b), which proscribes the use of subterfuge or pretense to

evade application of the usury laws.

CSOA expressly or impliedly permits the activities Lovick

alleges CPCWA engaged in as a broker. Under CSOA, read in

conjunction with the usury statutes, brokerage fees shared with the

19
lender are interest for the purpose of determining usury. Again,

Lovick does not allege CPCWA shared its fee with Ritemoney; nor

does Lovick allege CPCWA and Ritemoney are the same entity. Lovick

does not even allege that CPCWA’s charging a fee results in an

incidental benefit to Ritemoney. Ritemoney and CPCWA complied with

CSOA, identifying CPCWA as a CSO that would be charging a fee for

its services.

Because Texas law does not construe such credit service fees

as disguised interest, Lovick’s complaint fails to state a claim

for usury. Therefore, her RICO claim also fails. Her complaint

was properly dismissed.

III.

For the foregoing reasons, the judgment is

AFFIRMED.

ENDRECORD

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E. GRADY JOLLY, Circuit Judge, dissenting:

I respectfully dissent because I sense that something strange

may be going on here and there has been no discovery. When the

broker is getting 90% of the profit on a transaction, it is not

unreasonable to think that perhaps the lender is somehow being

benefitted; perhaps it is, in effect, receiving a usurious rate of

interest from whatever arrangement it has with the broker. Perhaps

the broker is paying a flat sum to the lender, or a percentage of

its seemingly excessive nominal fee; this may amount to usury under

the facts of this case, or it may suggest a conspiracy to commit

usury. Or perhaps nothing untoward is going on. It may even be

probable that this is a completely legal and legitimate operation.

Now, I do not disagree with the majority’s scholarly analysis

of Texas usury law and how it is affected by the CSOA, but it does

seem that Lovick stated a litigable claim here. Lovick makes the

following factual allegations in her Second Amended Complaint,

which, at this stage of the case, we must assume are true:

1) CPCWA handled all the usual tasks of the lender:

arrangement of advertising, credit review, collateral inspection,

approval decision, paperwork preparation, issuance and cashing of

checks, collecting payment, deciding when to repossess;

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 2) Ritemoney shifted all, or substantially all, of its

overhead expenses, thereby disguising extra interest;

3) CPCWA acted as an agent of or joint participant with

Ritemoney, as evidenced by its brokering all its title loans to

this particular lender, and Ritemoney’s making all its title loans

through CPCWA;

4) Ritemoney required that all loans be negotiated by CPCWA

and knew that the payment of the broker fee was a prerequisite for

a loan;

5) Ritemoney entrusted the entire management of its title loan

business to CPCWA, and CPCWA was Ritemoney’s agent rather than the

borrowers’ agent;

6) The Promissory Note discloses the interest rate for TILA

purposes to be 131.019%, but that, “for state law purposes,” the

“loan brokerage or other credit services” fee is being financed by

the Note, while the interest rate is 10%.

In other words, Lovick alleges that CPCWA was doing more than

serving as a mere arranger of loans, because it served as the

lender’s agent, and thus the 75% broker’s fee was not for a

separate service. Consequently, she alleges that the actual

interest rate was usurious.

In short, Lovick has, in my opinion, pled enough facts to

permit discovery and to allow the case to proceed at least to the

summary judgment stage.

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 For the foregoing reasons, I would vacate the district court’s

judgment and remand for further proceedings and, for that reason,

I respectfully dissent.

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