Lemelledo v. Beneficial Management Corp. of America

• Decision Date: 03 July 1997
• Citation: 150 N.J. 255,696 A.2d 546
• Parties: Jeanne C. LEMELLEDO, on behalf of herself and all others similarly situated, Plaintiff-Respondent, v. BENEFICIAL MANAGEMENT CORP. OF AMERICA and Beneficial New Jersey, Inc., Defendants-Appellants.
• Court: New Jersey Supreme Court

Page 255

150 N.J. 255

696 A.2d 546

Jeanne C. LEMELLEDO, on behalf of herself and all others similarly situated, Plaintiff-Respondent, v. BENEFICIAL MANAGEMENT CORP. OF AMERICA and Beneficial New Jersey, Inc., Defendants-Appellants.

Supreme Court of New Jersey.

Argued Feb. 18, 1997.

Decided July 3, 1997.

Burt M. Rublin, Philadelphia, PA, a member of the Pennsylvania bar, for defendants-appellants (Archer & Greiner attorneys; Sean T. O'Meara, Haddonfield, on the briefs).

Michael D. Donovan, Haverford, PA, a member of the Pennsylvania bar, for plaintiff-respondent (Tomar, Simonoff, Adourian, O'Brien, Kaplan, Jacoby & Graziano, attorneys; Charles N. Riley, Cherry Hill, on the letter brief).

Gail M. Lambert, Deputy Attorney General, for amicus curiae Attorney General of New Jersey, Peter Verniero, Attorney General, attorney; Andrea M. Silkowitz, Assistant Attorney General, and Jeffrey C. Burstein, Deputy Attorney General, of counsel.

Melville D. Miller, Jr., President, for amicus curiae Legal Services of New Jersey (Mr. Miller, attorney; Mr. Miller and Dawn Miller, on the brief).

Clark E. Alpert, West Orange, submitted briefs on behalf of amicus curiae The Mortgage Bankers Association of New Jersey (Alpert & Levy, attorneys; Mr. Alpert, West Orange, and E. Robert Levy, Union, of counsel).

Jonathan Romberg, Newark, submitted a brief on behalf of amicus curiae Seton Hall Law School Center for Social Justice.

Madeline L. Houston submitted a brief amicus curiae, pro se.

The opinion of the Court was delivered by

HANDLER, J.

"Loan packing" refers to a practice on the part of commercial lenders that involves increasing the principal amount of a loan by combining the loan with loan-related services, such as credit insurance, that the borrower does not want. In this case, a borrower secured a commitment from a commercial lender to provide a loan to defray the costs of college tuition for the borrower's daughter. When the borrower received the loan proceeds, the principal amount to be repaid included unrequested and unexpected premiums for credit insurance.

The borrower brought a class-action lawsuit challenging the extra charges affixed to her loan, contending that the practice was illegal and thus entitled her to damages. The specific issue raised in this appeal is whether the New Jersey Consumer Fraud Act applies to lenders who engage in "loan packing."

I

On or about July 19, 1992, Jeanne Lemelledo ("plaintiff") applied for a $2,000 loan for her daughter's college education from defendants Beneficial Management Corp. and Beneficial New Jersey (collectively referred to as "defendant"). Shortly after receiving the application, defendant notified plaintiff that the loan had been approved in full.

Plaintiff went to defendant's office with the expectation of receiving a check in the amount of $2,000. Instead, however, defendant presented her with numerous forms, including a loan contract for $2,538.47 and a check payable to her for $2,203.19. It is unclear why plaintiff received $203.19 more than she had requested in her application. The difference between the amount in the loan contract and the amount of the loan check ($335.28) was listed as "Amount Paid to Others on Your Behalf" and consisted of credit-insurance premiums, to be paid initially by defendant and added to the loan principal to be repaid by plaintiff. The premiums--credit property insurance ($170.10), credit disability insurance ($123.98), and credit life insurance ($41.20)--covered the possibility that plaintiff would default on her loan repayments. The loan, including the insurance premiums, was provided at an interest rate of twenty-eight percent; plaintiff was to make thirty-six monthly payments of $105.00 each.

Defendant apparently offers such insurance policies to all borrowers in order to provide greater assurance that the loans will be repaid. It sells the policies through either one of its insurance subsidiaries or an unaffiliated insurance company and receives a forty-percent commission from each sale. Defendant also receives substantial interest income from the sales because the amount of the insurance premium is incorporated into the loan principal and accrues interest, in this case at a rate of twenty-eight percent. When defendant sells the policies to borrowers, it provides them with a form entitled "Disclosure of Credit Costs," which states that the insurance is not a prerequisite to obtaining credit and that, if the borrower chooses to purchase the insurance, she can do so from any insurer. Those disclosures are required by law. N.J.S.A. 17:10-14.1a (replaced by N.J.S.A. 17:11C-21d).

Although plaintiff admits that defendant informed her, through the "Disclosure of Credit Costs" statement, that she did not have to purchase the insurance premiums, she alleges that defendant implicitly led her to believe that, if she did not purchase the insurance, she would not receive the loan. She points to several of defendant's actions that allegedly created such an implication, including: the presentation of the insurance and loan contracts as a single transaction (i.e., a single contract with one lump sum presented at the time of the loan); the failure to discuss the insurance separately from the loan itself and to evaluate her specific need or lack thereof for the insurance; and the pressure put on her, that is, the implicit threat that if she declined the insurance, she would have to return at a later date to receive the reprocessed loan proceeds.

Plaintiff stresses that borrowers in her position, with lower incomes and without substantial credit opportunities elsewhere, are particularly vulnerable to implicit misrepresentations about the need to purchase credit insurance and to purchase it from the lender. Apparently, a substantial percentage of Beneficial's loan customers are low-income and thus have limited choices about sources of credit. Plaintiff also emphasizes that credit insurance primarily benefits the lender, not the borrower.

Shortly after receiving the loan proceeds, plaintiff repaid the $2,203.19 in full. Defendant then sent her four $100 payment coupons to cover the insurance premiums plus interest on those premiums. She made the first two payments, but refused to make the final two. Defendant brought suit against her in August 1994 to recover the remaining balance, but it voluntarily dismissed the claim about three months later.

Almost immediately after the dismissal, plaintiff instituted a class-action lawsuit against defendant in the Law Division, alleging violations of the Consumer Fraud Act ("CFA"), N.J.S.A. 56:8-1 to -20, and the Consumer Loan Act ("CLA"), N.J.S.A. 17:10-1 to -26. ¹ She also alleged breach of contract, fraudulent inducement, conversion, common-law fraud, and criminal usury.

Defendant moved to dismiss the CFA, CLA, and usury claims for failure to state a claim upon which relief could be granted. R. 4:6-2(e). The Law Division granted the motion as to the CFA and usury claims, concluding that the CFA did not apply to loan packing. The Appellate Division granted plaintiff's motion for leave to appeal the dismissals and reinstated the CFA claim. 289 N.J.Super. 489, 674 A.2d 582 (1996). The court affirmed the dismissal of the usury claim. ² Id. at 502, 674 A.2d 582.

We granted defendant's motion for leave to appeal the reinstatement of the CFA claim. 146 N.J. 561, 683 A.2d 1158 (1996).

II

Because this interlocutory appeal arises from the Law Division's dismissal of plaintiff's CFA claim for failure to state a claim upon which relief can be granted, we review the legal issues at stake on the assumption that the facts, as alleged by plaintiff, are true. See Feinberg v. Department of Envtl. Protection, 137 N.J. 126, 129, 644 A.2d 593 (1994). Our sole inquiry is thus whether the CFA applies to defendant's actions as they are alleged by plaintiff.

A.

The CFA is intended to protect consumers "by eliminating sharp practices and dealings in the marketing of merchandise and real estate." Channel Cos. v. Britton, 167 N.J.Super. 417, 418, 400 A.2d 1221 (App.Div.1979); see Daaleman v. Elizabethtown Gas Co., 77 N.J. 267, 271, 390 A.2d 566 (1978). It prohibits

[t]he act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing[ ] concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been mislead, deceived or damaged thereby....

[ N.J.S.A. 56:8-2.]

The CFA defines "merchandise" as "any objects, wares, goods, commodities, services or anything offered, directly or indirectly to the public for sale." N.J.S.A. 56:8-1(c). It defines "advertisement" as

the attempt directly or indirectly by publication, dissemination, solicitation, indorsement or circulation or in any other way to induce directly or indirectly any person to enter or not enter into any obligation or acquire any title or interest in any merchandise or to increase the consumption thereof or to make any loan....

[ N.J.S.A. 56:8-1(a) (emphasis added).]

The CFA vests the Attorney General with jurisdiction to enforce its provisions through a variety of mechanisms, N.J.S.A. 56:8-3 to -8, -11, -15 to -18, & -20, but it also provides individual consumers with a cause of action to recover refunds, N.J.S.A. 56:8-2.11 to -2.12, and treble damages for violations, whether in good faith or otherwise, N.J.S.A. 56:8-19. The Attorney General enforces the CFA through the Division of Consumer Affairs. N.J.A.C. 13:45-1.1 to -5.6. The "rights, remedies and prohibitions" created by the CFA are cumulative to any other rights, remedies, and prohibitions created by the common law or other statutes. N.J.S.A....