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Household Finance Corp. v. Gaffney

Decided: June 20, 1952.


McGeehan, Jayne and Goldmann. The opinion of the court was delivered by Goldmann, J.A.D.


Household Finance Corporation (hereinafter designated as "Household") appeals from the decision of the Commissioner of Banking and Insurance of New Jersey denying its application for an additional license to conduct a small loan business in Trenton, N.J., under the Small Loan Law, L. 1932, c. 62, as amended and supplemented (N.J.S.A. 17:10-1, et seq.).

Household has for many years operated a small loan office at 28 West State Street, Trenton. Its present application for a second license is for premises located at 45 East State Street, about 1 1/2 blocks away. Notice of the application was duly published and served upon all licensees having places of business in Mercer County. N.J.S.A. 17:10-5(a). Objections to the issuance of the license were filed by Personal Finance Company of Trenton, Trenton Citizens System Company and Interstate Finance Company (hereinafter designated as the "objectors"), all of them small loan licensees having their offices in Trenton. The Commissioner of Banking and Insurance thereupon designated a time and place of hearing in accordance with the provisions of N.J.S.A. 17:10-5(a).

At the hearing, held July 27, 1950, Household presented a statement in support of its application, accompanied by 13 exhibits setting forth certain documentary and statistical evidence deemed pertinent. No testimony was introduced, but both Household and the objectors made oral arguments outlining their respective positions.

The Commissioner, wholly independent of the hearing, made an investigation of the application as required by N.J.S.A. 17:10-5(a). He withheld decision after the hearing, awaiting the determination of the appeal then pending in Family Finance Corp. v. Gough. The decision of the Appellate Division came down on October 19, 1950. 10 N.J. Super. 13. In view of what the court said in that case, the Commissioner sent the applicant and the objectors copies of the report of his investigation and of "A Statement on the Convenience and Advantage Clause, the Method of Application Used and the Policy Applied in New Jersey," prepared after the adoption of the Small Loan Act of 1932 by James M. Sullivan, then Chief of the Division of Personal Loan Agencies and now Chief of the Consumer Credit Division of the Department of Banking and Insurance. This statement embodies the so-called "Sullivan Formula" and is commonly so designated. The Commissioner also offered Household and the objectors an opportunity to submit additional data and to have a further hearing. Neither took advantage of the offer, but Household did submit an additional statement devoted largely to a critical analysis of the Sullivan Formula and the departmental policy based thereon.

On July 20, 1951, the Commissioner denied Household's application solely upon the ground that the convenience and advantage of the community would not be promoted by granting the second license. The applicant thereupon requested the Commissioner to reconsider his decision on the basis of the record or, in the alternative, to grant a rehearing, because his decision did not deal with the special reasons advanced by Household in support of its application. These reasons form part of the basis of the present appeal and will be referred

to hereafter. The Commissioner denied appellant's request on August 15, 1951.

The statutory provision involved in this appeal is N.J.S.A. 17:10-5(b), which sets forth the prerequisites for the issuance of a small loan license. The Commissioner must first find:

"(a) that the financial responsibility, experience, character and general fitness of the applicant * * * are such as to command the confidence of the community and to warrant belief that the business will be operated honestly, fairly and efficiently within the purposes of this chapter, (b) that allowing the applicant to engage in business will promote the convenience and advantage of the community in which the business of the applicant is to be conducted and (c) that the applicant has a net worth of at least twenty-five thousand dollars ($25,000.00) and has available for the purpose of making loans under this chapter at the specified location liquid assets of at least twenty-five thousand dollars ($25,000.00), * * *."

Neither the Commissioner nor the objectors question the applicant's financial responsibility, experience, character and general fitness (requirement (a) above), or its net worth and available loan capital (requirement (c) above). However, and as has already been pointed out, the Commissioner denied the application because of the convenience and advantage requirement of the statute.

On this appeal the court gave the objectors permission to file briefs as amici curiae. They seek affirmance of the Commissioner's decision. Family Finance Corporation was likewise permitted to file a brief amicus. That company does not now have a licensed small loan office in Trenton. Its application for a Trenton license was denied. A new application is now pending before the Commissioner. The company's position on this appeal is that there is ample small loan business in Trenton and that it is to the convenience and advantage of the community that the company be granted a license and the appellant a second license. If, however, it is determined that only one additional license shall be granted in Trenton, then Family Finance Corporation claims it should receive that license, as prior applicant.

The issues presented by the appellant are essentially these:

(1) The Commissioner erred in finding that the issuance of a second license to Household would not promote the convenience and advantage of the Trenton community;

(2) The Commissioner failed to take into account or make adequate findings concerning the following facts presented by the applicant:

(a) Household's consistent policy of charging less than the maximum rate permitted by the Small Loan Law and less than the rate charged by any other small loan company in Trenton;

(b) The lack of necessary space in Household's present Trenton small loan office, and of management time to serve its borrowers properly;

(c) Prospective increases in the demand for small loans in Trenton, based on existing trends and on increases in the number of wage earners due to new additions to the community's manufacturing and business facilities.

(3) The Commissioner erred in the use of or in the weight given to the Sullivan Formula and to retail sales statistics.

The first and third of these contentions are interrelated and will be considered under III below. The second point is discussed under IV.

A fourth contention -- that there was no support in the record for the Commissioner's finding that the eight existing small loan companies in Trenton had sufficient working capital and credit to meet the demand for small loans there and, in addition, that there were banks and credit unions in Trenton actively engaged in the business of making personal loans -- has been abandoned. The record supports this finding.


The convenience and advantage standard was first introduced into our small loan law in 1932 when the Legislature adopted an act modeled after the fifth draft of the Uniform Small Loan Law prepared by the Russell Sage Foundation. L. 1932, c. 62, ยง 4. Soon after 1935 the Commissioner of Banking and Insurance put into effect what has been described

as "a general policy of limitation," expressed in the Sullivan "Statement on the Convenience and Advantage Clause, the Method of Application Used and the Policy Applied in New Jersey" (the "Sullivan Formula"). Under this policy 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 loan capacity. The policy is considered to have "contributed to the elimination of unethical 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." Sullivan, Administration of a Regulatory Small Loan Law , 8 Law and Contemporary Problems (Winter, 1941), pp. 148-149.

In the Family Finance case, 10 N.J. Super. 13, 21-22, this court held that the convenience and advantage clause provided a legally sufficient standard to guide the Commissioner in the exercise of the power delegated to him by the Legislature. The court also held that the Commissioner's adoption of a general policy of limitation of licenses may not be stricken down "in the absence of any showing that it does not constitute reasonable regulation of the small loan business which admittedly is clothed with a public interest and is constitutionally subject to regulation." (p. 23)


This appeal is brought under Rule 3:81. Appellant urges the court to exercise the power given it by Rule 3:81-13:

"In proceedings authorized by Rule 3:81 the court shall have power to * * * make independent findings thereon, which power may be exercised by it to such extent as the interests of justice may require."

The interests of justice do not require the power granted by this rule to be exercised where the decision of the

administrative agency is not arbitrary and is supported by sufficient and competent evidence. Traymore of Atlantic City, Inc. v. Hock , 9 N.J. Super. 47, 48 (App. Div. 1950); D.A. Schulte, Inc. v. Jersey City , 7 N.J. Super. 184, 186 (App. Div. 1950). This would particularly appear to be so where the Legislature has expressly left the determination to the expert judgment of the administrative agency acting in a field requiring specialized knowledge as well as practical experience. See New Jersey Power & Light Co. v. Borough of Butler , 4 N.J. Super. 270, 281 (App. Div. 1949).

The rule was the same under the old prerogative practice. In Fornarotto v. Board of Public Utility Comm'rs. , 105 N.J.L. 28 (Sup. Ct. 1928), the board refused to approve a permit granted the prosecutor by South Orange to operate buses along a certain route. The statute gave the board power to approve any grant of privilege or franchise to a public utility by any political subdivision of the State, after hearing and determination that the privilege or franchise was "necessary and proper for the public convenience and properly conserves the public interest." The court said (at page 33):

"This manifestly is a question of good judgment for the board to determine upon the evidence, as well as upon their knowledge of the situation presented by the existing conditions of public travel, and the general public welfare. The legislature has seen fit to delegate this power to the discretion of this board, and unless it appears that the board has reached its conclusion by a manifest violation of the law or by a clear abuse of the discretion vested in it, it is not within the power of ...

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