Family Finance Corp. v. Gough, A--341

• Decision Date: 19 October 1950
• Docket Number: No. A--341,A--341
• Parties: FAMILY FINANCE CORPORATION v. GOUGH.
• Court: New Jersey Superior Court — Appellate Division

Page 13

10 N.J.Super. 13

76 A.2d 82

FAMILY FINANCE CORPORATION v. GOUGH.

No. A--341.

Superior Court of New Jersey

Appellate Division.

Argued Oct. 2, 1950.

Decided Oct. 19, 1950.

Walter F. Waldau, Newark, argued the cause for the appellant (Stryker, Tams & Horner, Newark, attorneys).

Oliver T. Somerville, Deputy Attorney-General of New Jersey, argued the cause for the respondent (Theodore D. Parsons, Attorney-General of New Jersey, attorney).

Sol D. Kapelsohn, Newark, argued the cause for North Jersey Finance Service, Inc. (Kapelsohn, Lerner, Leuchter & Reitman, Newark, attorneys).

Max Mehler, Newark, argued the cause for Auto Loan Co. and others, amici curiae.

Before Judges JACOBS, EASTWOOD and BIGELOW.

The opinion of the court was delivered by

JACOBS, S.J.A.D.

The appellant Family Finance Corporation appeals from the denial of its application for a license to operate a small loan business at 66 Hudson Street, Hoboken, New Jersey.

Appellant's application for license was duly filed and, in accordance with R.S. 17:10--5, N.J.S.A., notice thereof was published in a newspaper and served upon all licensees having places of business in Hudson County. Objection to the license was filed by North Jersey Finance Service and thereupon the respondent issued notice that a hearing on the application would be held at the Department of Banking and Insurance. No testimony was introduced at the hearing but the respondent announced that he would permit the applicant and the objector to file briefs and that he would consider the matter. There was no dispute in the briefs which were thereafter filed as to the responsibility and general fitness of the applicant; however, there was serious dispute as to whether the granting of the application would promote the convenience and advantage of the community within the contemplation of R.S. 17:10--5, N.J.S.A. On this disputed issue the objector pointed out that it had been operating its business in Hoboken for thirty days, its licensed premises were adjacent to those sought to be licensed by the applicant, and another licensee had been operating at a nearly locality in Hoboken for the past four or five years. It urged that, considering their past business experiences and the limited population and unfavorable industrial prospects of Hoboken, the issuance of an additional license was not only unnecessary to meet any demands but would also create a situation in which there was a surplus of lenders competing for insufficient business. On the other hand the applicant urged that in addition to its population Hoboken serves large numbers of persons residing elsewhere, its industrial prospects were good, and the issuance of the license sought would directly promote the convenience and advantage of the community.

Upon the filing of the application and wholly independent of the aforedescribed hearing, the respondent conducted an investigation in accordance with R.S. 17:10--5(b), N.J.S.A. A report submitted by Principal Examiner Moore to Mr. James M Sullivan, Chief of the Consumer Credit Division of the Department of Banking and Insurance, embodied the results of interviews with representatives of the local banking institutions, an analysis of the outstanding loan balances of the two licensees and the population in Hoboken, and the conclusion that the community was being served adequately. Mr. Sullivan's memorandum to the respondent analyzed the service rendered by the licensees and the population in Hoboken which he compared with the service rendered and the population in other communities and concluded that 'We do not fell that any individual in Hoboken lacks access to a properly licensed agency to meet his consumer credit demands and until such time as Hoboken shows a return to normal activity and sufficient growth to warrant the probability that the issuance of an additional license will not affect in any way the present service now afforded in this community, we recommend that the application for a license be denied at this time.'

Shortly following the receipt of Mr. Sullivan's memorandum the respondent denied the application upon the simple finding that for Auto Loan Co. and others, amici curiae. the convenience and advantage of the community. There was no accompanying opinion setting forth any basic factual findings. Thereafter counsel for the applicant requested that the denial be set aside and that a further hearing be granted 'at which we may submit formal proof and additional evidence and be informed of any findings of fact made.' This request was denied and thereupon appeal from the denial of the application for license was taken to this court. In support of its appeal the appellant contends, primarily, that the Small Loan Law (R.S. 17:10--1 et seq., N.J.S.A.) may not be construed to authorize the Commissioner to limit the issuance of licenses to otherwise qualified applicants and if it is so construed it is unconstitutional and, secondarily, that the Acting Commissioner erred in failing to make basic findings of fact and in relying upon a policy of limitation which was not embodied in a Rule filed with the Secretary of State under Article V, Section IV, paragraph 6 of the New Jersey Constitution.

The small loan business has long been the subject of study, legislation and judicial determination. See Gallert, Hilborn and May, Small Loan Legislation (Russell Sage Foundation, 1932); Hubachek, Annotations on Small Loan Laws (Russell Sage Foundation, 1938); 8 Law and Contemporary Problems (Winter, 1941). New Jersey was in Hoboken for thirty years, its licensed early adopted general acts designed to regulate and control the business of making licensee had been operating at a nearby for the licensing of small loan companies and granted power to the Commissioner of Banking and Insurance to reject an application for license because of lack of character or fitness of the applicant. In 1916 the Russell Sage Foundation submitted its first draft of a Uniform Small Loan Law which adopted the regulatory philosophy of the New Jersey act and some of its provisions.

Despite the requirements in the New Jersey act, numerous companies obtained licenses and towards the close of 1928 there were 437 in operation. Sullivan, in his article on 'Administration of a Regulatory Small Loan Law', 8 Law and Contemporary Problems, supra, pp9 146, 147, states that this 'large influx of capital led to unethical lending practices, overextension of credit and other extremes.' In 1929 the Legislature, acting pursuant to a report of the Joint Legislative Commission to investigate the Department of Banking and Insurance (see P.L.1928, pp. 791, 811), reduced radically the rate chargeable by small loan companies. P.L.1929, c. 293. This apparently resulted in withdrawal or threatened withdrawal of many of the licensees and in 1931 the Legislature appointed a commission to inquire into the regulation of the small loan business (see P.L.1931, p. 1265). In 1932 a majority of this commission recommended that the rate be increased and that the Commissioner of Banking and Insurance be given discretionary powers with respect to the granting of small loan licenses.

In the meantime, further drafts of the that 'We do not feel that any individual in by the Russell Sage Foundation. The fourth draft provided, in effect, as did the earlier drafts, that an applicant could demand a license upon paying the fee, filing the bond, and meeting ministerial requirements. However, the fifth draft issued in 1932 departed from the earlier drafts by imposing additional requirements, including the need for a finding by the Commissioner that the granting of the application will promote the convenience and advantage of the community. In discussing this departure Hubachek, supra, at p. 54 says:

'Where competition was too intense events demonstrated that the public interest was not well served. 'There is a tendency for excessive competition to increase costs of lending, and consequently to restrain competitive rate reductions.' There was evidence that some licensees were not operating efficiency or were inadequately financed, either condition obstructing attainment of the objectives of the law. Stock promoters, without practical experience or realization of the commercial importance of fair dealings with borrowers, entered the business to its detriment.

'To meet these conditions the recommended system of licensing was changed in 1932. The Commissioner was given fact finding powers the exercise of which permitted wide discretion. The standards established applied boto to the qualifications of the applicant and to the conditions in the community where the business was to be conducted.'

In 1932 our Legislature adopted the change in the fifth draft and provided (P. L. 1932, c. 62, p. 98) that the license shall be issued if the Commissioner finds, in addition to requirements relating to character and fitness, financial responsibility and net worth, that the granting of the license will promote the convenience and advantage of the community. Following this enactment the Commissioner apparently put into effect what might be described as a general policy of limitation, under which new licenses were not issued unless the Commissioner found that they would promote the convenience and advantage of the community, particularly in the light of its population and estimated '6oan capacity.' In his 1941 article Sullivan, supra, pp. 148, 149, expressed the opinion that the policy 'contributed to the elimination of methical business practices, unfair competition, overextension of credit; and has a tendency to increase efficiency, reduce costs of operation and thereby encourage voluntary rate reduction which, after all, is most beneficial to the borrowing public's welfare.' Although there have been subsequent pertinent enactments, no change in the administrative policy has been made; P.L.1949, c. 109 seems to have strengthened it by continuing the...