When a North Carolina consumer-finance licensee applies to do other business at the same office where it makes loans, is the licensee entitled to an evidentiary hearing, and what role does the State Banking Commission play in reviewing the Commissioner's decision?

Plain-English summary

The Consumer Finance Act in Article 15 of Chapter 53 of the NC General Statutes lets a licensee make small consumer loans but limits what else the licensee can do at the same office. G.S. § 53-172(a) bans "other business" at a loan office. G.S. § 53-172(b) lets the Commissioner of Banks authorize other business "in writing" if the Commissioner determines that the other business "would not be contrary to the best interest of the borrowing public." G.S. § 53-172(f) requires an APA-style evidentiary hearing before the Commissioner can revoke other-business authorization that has previously been granted.

The State Banking Commission asked the AG several procedural questions: do licensees get an evidentiary hearing on their initial applications under (b)? Must the Commission review the Commissioner's appeal under G.S. § 53-188 on the record only, or may it take new evidence or hold a de novo hearing?

Senior Deputy Attorney General Ann Reed and Special Deputy Attorney General Henry T. Rosser walked through the interplay between the Consumer Finance Act and the Administrative Procedure Act in Chapter 150B and concluded as follows.

Hearings on initial applications. Even though G.S. § 53-172(b) does not expressly require a hearing on a new application (only § 53-172(f) does, for revocation), the opinion read a hearing right into the statutory structure. The Commission has appellate authority under G.S. § 53-188 to "review" any "rule, regulation, order or act of the Commissioner." That review only makes sense if there is a record produced by the Commissioner below. So whenever there is "any likelihood that the application will be denied," the licensee is entitled to an evidentiary hearing before the Commissioner. Standard due process notice-and-opportunity-to-be-heard analysis reinforces the same conclusion.

The APA applies. G.S. § 150B-38(b) makes both the Commissioner and the Commission subject to the APA for hearings. G.S. § 150B-1(e) extends contested-case provisions to "all agencies and all proceedings not expressly exempted from this Chapter." The Consumer Finance Act and the APA can be harmonized: the Act provides the authority and the right to a hearing; the APA provides the procedures. Either body may also request an administrative law judge from the Office of Administrative Hearings under G.S. § 150B-40(e) to preside, except that the Commission cannot delegate its G.S. § 53-188 appellate review to an ALJ.

The Commission's role on appeal. G.S. § 53-188 lets a licensee aggrieved by the Commissioner's order or act appeal to the Commission "for review." The statute does not contemplate a new hearing at the Commission level. The Commission's only independent hearing authority under the Act is G.S. § 53-173(f), the maximum-interest-rate hearing. Everywhere else, the Commission's role under § 53-188 is appellate: it reviews the record made before the Commissioner and produces the final agency decision. The opinion analogized to an agency reviewing an ALJ's recommended decision under G.S. § 150B-36 and § 150B-40(e): the review is limited to the official record, and consideration of new evidence is grounds for reversal under G.S. § 150B-51(a). The Commission therefore "is restricted in its review to a consideration of the record of the hearing before the Commissioner, and the Commission may not receive new or additional evidence during such review."

Final agency decision and judicial review. The Commission's decision on appeal is the final agency decision. Article 4 of Chapter 150B then provides the route to superior court for judicial review.

Procedures the Commission should follow. The Commission should track Article 3A of Chapter 150B and the procedures in G.S. § 150B-40(e) and § 150B-42(e), with a record prepared in accordance with § 150B-42(b), but substituting "Commissioner" for "presiding officer" wherever needed. The opinion recommended a sweep of the Commission's existing administrative rules to align them with Article 3A.

Currency note

This opinion was issued in 1993. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The APA has been substantially restructured since 1993. The contested-case framework now sits primarily in Article 3 of Chapter 150B, the Office of Administrative Hearings runs most contested cases under G.S. § 150B-23, and the Commissioner of Banks/Banking Commission relationship has its own modern rules. The substantive principle (Commission appellate review is on the record, not de novo) generally survives, but anyone briefing a current Banking Commission appeal should pull the current statutes and rules rather than rely on this 1993 cross-reference map.

Common questions

Q: When does a licensee get an evidentiary hearing on an initial application?
A: Whenever there is "any likelihood that the application will be denied." That phrase reads in a hearing right whenever the Commissioner is leaning toward denial, not just when the statute textually requires one. In practice, the Commissioner should give notice and an opportunity to be heard before any adverse action on an application.

Q: Can the Commissioner delegate the hearing to an administrative law judge?
A: Yes. G.S. § 150B-40(e) lets either the Commissioner or the Commission ask the Office of Administrative Hearings to designate an ALJ to preside. The ALJ produces a recommended decision; the Commissioner then either adopts it or modifies it under § 150B-36.

Q: Can the Commission take new evidence on appeal?
A: No. The Commission's role under G.S. § 53-188 is appellate review on the record made before the Commissioner. Consideration of new evidence at the Commission level is grounds for reversal of the final agency decision under § 150B-51(a). If the licensee wants additional facts in the record, the licensee needs to introduce them at the Commissioner-level hearing.

Q: Can the Commission delegate its § 53-188 review to an ALJ?
A: No. The opinion was explicit: "The Commission cannot delegate to an administrative law judge its responsibility to hear appeals under G.S. § 53-188." The ALJ option in § 150B-40(e) covers original hearings, not appellate review by the Commission.

Q: What's the path from Commission decision to court?
A: Article 4 of Chapter 150B (now Article 4 of the modern APA) provides judicial review in superior court. The standard of review under that article is the usual administrative-law standard: substantial evidence on the record, plus error of law review.

Q: What is the legal effect of G.S. § 53-172(f) requiring a hearing for revocation?
A: Section 53-172(f) provides an express hearing right when the Commissioner moves to revoke other-business authority that was previously granted. The opinion treats that express right as evidence that the legislature wanted procedural fairness in the other-business arena generally, and uses it as a structural argument for reading a parallel hearing right into initial applications under (b).

Q: Can interested third parties intervene?
A: Yes. G.S. § 150B-38(f) lets the hearing officer (Commissioner or Commission) permit any interested person to intervene and participate in the hearing. Whether to allow intervention is discretionary.

Background and statutory framework

The Consumer Finance Act predates the modern APA by decades. The Act granted hearing authority to both the Commissioner and the Commission across a long list of specific subjects (G.S. § 53-4, § 53-12, § 53-17.1(d), § 53-92.1, § 53-168(b), § 53-171(a), § 53-172(b) and (f), § 53-206, § 53-215, § 53-228, § 53-231, § 53-232.16, § 53-232.17, § 53-239, and § 53-240). It also set up a unique appellate structure in G.S. § 53-188 where the Commission reviews the Commissioner's orders rather than a court doing so directly.

When the General Assembly adopted the APA, it pulled most state hearings into Chapter 150B's framework. The Banking Commissioner and Commission landed there via § 150B-38. The legislative drafters did not, however, harmonize every cross-reference between the older Banking Act and the newer APA. The result was a string of structural mismatches: the APA assumes a board or commission makes the final agency decision, while the Banking Act vests most hearing power in the Commissioner; the APA contemplates judicial review of final agency action, while the Banking Act inserts a Commission appeal step before judicial review.

This opinion's job was to splint those mismatches without amending either statute. Reed and Rosser's resolution was elegant: read the Act for substantive authority and hearing rights, read the APA for procedure, and treat the Commission's appellate review as the analog of an agency's review of an ALJ's recommended decision. That mapping keeps both statutes functional and identifies a coherent path from initial application through Commissioner-level hearing, through Commission appellate review, through judicial review under Article 4 of Chapter 150B.

The opinion's closing recommendation, that the Commission update its administrative rules to align with Article 3A of Chapter 150B, was a practical move. Rules written before the APA migration risked confusion. Better to update them than to let practitioners and applicants stumble over outdated cross-references.

Citations

• G.S. § 53-172 (other business on consumer finance premises)
• G.S. § 53-172(b) (Commissioner of Banks may authorize other business)
• G.S. § 53-172(f) (hearing required to revoke other-business authority)
• G.S. § 53-173(f) (Commission rate-fixing hearing)
• G.S. § 53-188 (appeal to State Banking Commission from Commissioner's order or act)
• G.S. § 150B-1(e) (contested case provisions apply broadly)
• G.S. § 150B-36 (APA review of recommended decisions)
• G.S. § 150B-38(b) (APA applies to Commission and Commissioner hearings)
• G.S. § 150B-38(f) (intervention by interested persons)
• G.S. § 150B-40(b) (final agency decision by board or commission)
• G.S. § 150B-40(e) (ALJ may preside)
• G.S. § 150B-42(b) (record contents)
• G.S. § 150B-42(e) (review procedures)
• G.S. § 150B-43 (judicial review of final agency decision)
• G.S. § 150B-51(a) (grounds for reversal; new evidence consideration)
• Article 3A of Chapter 150B (administrative hearings)
• Article 4 of Chapter 150B (judicial review)

Source

• Landing page: https://ncdoj.gov/opinions/consumer-finance-act/

Original opinion text

1. Are licensees under the Consumer Finance Act (the Act) who apply to the Commissioner pursuant to G.S. § 51-172(b) for authorization to solicit and transact other business in an office in which the licensees make loans under the Act entitled to evidentiary hearings on their applications?

• a.
• If the answer to 1 is "Yes," what procedures must be followed by the hearing tribunal in conducting the hearing?
• b.

• If a licensee is not entitled to a evidentiary hearing on the application, is the licensee subsequently entitled to an evidentiary hearing if the application is denied in whole or in part?

• (1)

• If the licensee is entitled to such subsequent hearing, what procedures must be followed by the hearing tribunal in conducting the hearing?
• (2)

• If the licensee is not entitled to any hearing, what appeal rights does the licensee have from the agency decision on the application?

• II.

• What is the appropriate role of the State Banking Commission in reviewing a decision of the Commissioner which has been appealed by a licensee pursuant to G.S. § 53-188?
• a.
• Must the Commission review the decision of the Commissioner only upon the record of the proceedings before the Commissioner; or
• b.
• May the Commission, in its discretion, take additional evidence to supplement the record of the proceedings before the Commissioner; or
• c.
• Must the Commission conduct a de novo hearing?

III. What procedure must be followed by the Commission in reviewing a decision of the Commissioner which has been appealed by a licensee pursuant to G.S. § 53-188?

BACKGROUND

Both the Commission and the Commissioner are authorized by the Act to conduct hearings in specified circumstances. The Commissioner is also authorized to take certain actions for which a hearing is not specified in the Act. One of those actions is the Commissioner's authority to grant or withhold authorization to a licensee under the Act to solicit and transact other business on the premises where the licensee conducts a consumer finance business. G.S. § 53-172(b) (1992 Cum. Supp.).

Many of the provisions of the Act were enacted before the adoption of the Administrative Procedure Act (APA). Both the Commissioner and the Commission are made subject to and are authorized to conduct hearings pursuant to the APA by G.S. § 150B-38. The procedures to be followed in such hearings are specified in that statute. Unfortunately, the hearing authority and procedures specified in the Act and those specified in the APA do not dovetail neatly. For instance, the APA assumes that all hearings pursuant to G.S. § 150b-38 will be held and the final agency decision issued by a board or commission. G.S. § 150B-40(b). Under the banking statutes, however, including the Act, most hearing and decision-making authority is vested in the Commissioner. See, e.g., G.S. §§ 53-4, 53-12, 53-17.1(d), 53-92.1, 53-168(b), 53-171(a), 53-172(b) and (f), 53-206, 53-215, 53-228, 53-231, 53-232.16, 53-232.17, 53-239, and 53-240. While the APA contemplates that an appeal will lie to the superior court from an agency decision, G.S. § 150B-43, the Act provides that the decisions of the Commissioner will be reviewed by the Commission upon an appeal, G.S. § 53-188.

The Commission's request for an opinion from this Office arises from a need to resolve the conflicting provisions of the Act and the APA. Ultimately, the issue to be resolved is the extent to which the Act or the APA controls with regard to hearings and decision-making by the Commissioner and the Commission under the Act.

DISCUSSION

I. Are licensees under the Act entitled to evidentiary hearings on their applications to the Commissioner for authorization to conduct other business on the premises where they operate their consumer finance businesses?

The right of a licensee to request and the authority of the Commissioner to grant other business authority is set out in G.S. § 53-172 (1992 Cum. Supp.), which reads, in pertinent part, as follows:

• (a)
• No licensee shall conduct the business of making loans under this Article within any office, suite, room, or place of business in which any other business is solicited or transacted….
• (b)
• Notwithstanding subsection (a) of this section, the Commissioner may authorize in writing the solicitation and transaction of other business in any office, suite, room, or place of business in which a licensee is conducting the business of making loans if the Commissioner determines that the other business would not be contrary to the best interest of the borrowing public….
• (f)
• If, at any time, the Commissioner has reason to believe that the conduct of any other business authorized under this section is contrary to the best interests of the borrowing public, the Commissioner shall hold a hearing pursuant to Chapter 150B of the General Statutes to determine whether or not to revoke the authority to conduct that business. The Commissioner shall revoke the authorization to conduct any other business if he or she finds that the conduct of any other business authorized under this section is contrary to the best interest of the borrowing public.

Subsection (f) specifically requires an evidentiary hearing pursuant to the APA in order to revoke other business authority previously granted; there is no specific requirement in subsection (b) for such a hearing by the Commissioner when he is considering an application from a licensee for other business authority. It is our opinion, however, that a licensee is entitled to an evidentiary hearing upon an application for other business authority if there is any likelihood that the application will be denied.

We believe that the necessity for an evidentiary hearing is implicit in the Act itself. A licensee who is aggrieved by any order or act of the Commissioner is entitled to appeal to the Commission, which has "full authority" to review "any rule, regulation, order or act of the Commissioner done pursuant to or with respect to the provisions of [the Act]." G.S. § 53-188. The plain words of the statute indicate that the Commission is to conduct an appellate review of the orders or acts of the Commissioner. The term "review" has been defined as:

[J]udicial reexamination of the proceedings of a court or other body; a reconsideration by the same court or body of its former decision; often used to express what an appellate court does when it examines the record of a lower court or agency determination on appeal (emphasis added). Steven H. Griffis, Law Dictionary (2d ed., Barrons 1984). When, as here, the orders or acts are within the statutory authority of the Commissioner, a review on an appeal of those orders or acts must necessarily be upon the record of the proceedings before the Commissioner, if the review is to be meaningful. We conclude, therefore, that an evidentiary hearing before the Commissioner is necessary to meet the review provisions of G.S. § 53-188. Further, to the extent that due to process considerations are implicated in the actions of the Commissioner or the Commission, those affected are entitled to notice and an opportunity to be heard.

It is also our opinion that APA applies to hearings conducted under the Act. While there are conflicts between the Act and the APA, we believe that their provisions can be reconciled and harmonized and effect given to both without violence to either. The APA, by its terms, applies to both the Commissioner and the Commission with regard to hearings conducted by them. G.S. § 150B-38(b). When either the Commissioner or the Commission conducts a hearing under the Act, it is our opinion that they must do so in conformity with the provisions of the APA. See G.S. § 150B-1(e), which states, "The contested case provisions of this Chapter apply to all agencies and all proceedings not expressly exempted from this Chapter." In other words, the authority of the Commission and the Commissioner to conduct hearings, and the right of affected parties to a hearing, arise under the Act, while the procedures to be followed in conducting the hearings are those specified in the APA.

Article 3A of Chapter 150B, which sets out the procedures to be followed by an administrative agency in conducting a hearing, permits the agency to request the Office of Administrative Hearings to designate an administrative law judge to preside at the hearing and sit in place of the agency. G.S. § 150B-40(e). Since both the Commissioner and the Commission are authorized to conduct hearings, both by the Act and the APA, it is our opinion that either may request the appointment of an administrative law judge to preside at a hearing which the Commissioner or the Commission, respectively, is authorized by the Act to conduct. The Commission cannot delegate to an administrative law judge its responsibility to hear appeals under G.S. § 53-188, however, The agency or the hearing officer, i.e., the Commission or the Commissioner, as appropriate, is authorized by G.S. § 150B-38(f) to permit any interested person to intervene and participate in a hearing.

II. What is the appropriate role of the Commission in reviewing a decision of the Commissioner which has been appealed by a licensee pursuant to G.S. § 53-188?

The right of a licensee aggrieved by an order or act of the Commissioner to appeal to the Commission is set out in G.S. § 53-188, as follows:

The Commission shall have full authority to review any rule, regulation, order to act of the Commissioner done pursuant to or with respect to the provisions of this Article and any person aggrieved by any such rule, regulations, order or act may appeal to the Commission for review upon giving notice in writing within 20 days after such rule, regulation, order or act complained of this adopted, issued or done (emphasis added).

In this respect, the Act departs from the procedures set out in APA, which contemplates that action by the agency will be final and may be appealed to the superior court for judicial review.

G.S. § 150B-43. It is clear from the language of G.S. § 53-188, however, that an order or act of the Commissioner is not necessarily the final agency decision, since the Commission may, and upon an appeal, must review the acts and orders of the Commissioner. In those cases, then the decision of the Commission becomes the final agency decision.

The role of the Commission upon an appeal from an act or order of the Commissioner is clear from the language of G.S. § 53-188 when that statute is construed in pari materia with other Act provisions and with APA. The statute makes no reference to a hearing and, indeed, the only hearing authority of the Commission under the Act is that set out in G.S. § 53-173(f), which permits the Commission to refix certain maximum interest rates pursuant to a hearing. The language of G.S. § 53-188 states that an aggrieved party may appeal to the Commission for a review of the order or act of the Commissioner. This language is consistent with that of the APA, which provides for review of a recommended decision of an administrative law judge by the affected agency for the purpose of making a final agency decision. G.S. § 150B-36 and 150B-40(e). In such cases, the review is limited to a consideration of the official record. G.S. § 150B-36(b) and 150B-42. Consideration of new evidence by the agency after receiving the recommended decision is grounds for reversal of the final agency decision. G.S. § 150B-51(a). It is our opinion that upon an appeal to the Commission from an order or act of the Commissioner, the Commission is in the same position as an administrative agency reviewing the recommended decision of an administrative law judge for the purpose of making a final agency decision. The Commission is restricted in its review to a consideration of the record of the hearing before the Commissioner, and the Commission may not receive new or additional evidence during such review. The action of the Commission upon the order or act of the Commissioner is the final agency decision, which may be appealed to the superior court for judicial review pursuant to the provisions of Article 4 of Chapter 150B.

III. What procedure must be followed by the Commission when reviewing an act or order of the Commissioner which has been appealed pursuant to G.S. § 53-188?

Consistent with what has been said above, it is our opinion that the Commission should follow the procedures set out in Article 3A of Chapter 150B for review by an agency of a recommended decision of an administrative law judge for the purpose of making a final agency decision. More specifically, the Commission should follow the procedures set out in G.S. §§ 150B-40(e) and 150B-42(e) in reviewing the order or act of the Commissioner upon a record prepared in accordance with G.S. § 150B-42(b), except that the decision, opinion, order, or report referred to in subdivision (b)(6) will be that of the Commissioner rather than the presiding officer. Reference is made, also, to G.S. §§ 150B-36 and 150B-40, which, although applicable to Article 3 hearings, contain provisions that are equally applicable to Article 3A reviews.

We strongly recommend that the Commission and the Commissioner review the current procedures set out in the Commission's administrative rules. Since the hearing procedures under Article 3A of Chapter 150B, we feel that it would be the benefit of the Commission, the Commissioner, and licensees to amend the current administrative rules concerning hearings to the extent necessary to take those inconsistencies into consideration.

We hope that we have fully answered all questions presented by or on behalf of the Chairman, the Commission, and the Commissioner, but if there are further questions or comments, we will be happy to respond.

Ann Reed Senior Deputy Attorney General

Henry T. Rosser Special Deputy Attorney General