On appeal from the Superior Court of New Jersey, Law Division, Camden County.
Approved for Publication April 19, 1996.
Before Judges A.m. Stein, Kestin and Cuff. The opinion of the court was delivered by A.m. Stein, J.A.D.
The opinion of the court was delivered by: Stein
The opinion of the court was delivered by A.M. STEIN, J.A.D.
Plaintiff Jeanne C. Lemelledo filed a class action against defendants Beneficial Management Corp. of America and Beneficial New Jersey, Inc., (collectively "Beneficial") claiming Beneficial violated the Consumer Fraud Act, the Consumer Loan Act and the criminal usury statute. Lemelledo also alleged breach of contract, conversion and common law fraud. The Law Division Judge granted Beneficial's motion to dismiss the Consumer Fraud Act and usury counts for failure to state a claim upon which relief can be granted. R. 4:6-2(e).
We reverse the dismissal of the Consumer Fraud count and affirm the dismissal of the usury count.
On this motion to dismiss for failure to state a claim, we examine the legal sufficiency of the facts alleged in the complaint. R. 4:6-2(e); Printers Mart-Morristown v. Sharp Electronics Corp., 116 N.J. 739, 746, 563 A.2d 31 (1989). We accept all facts alleged by plaintiff as true, giving plaintiff "the benefit of all inferences that may be drawn from those facts." Feinberg v. New Jersey Dep't of Environmental Protection,137 N.J. 126, 129, 644 A.2d 593 (1994).
Beneficial Management Corp. of America and Beneficial New Jersey, Inc. are subsidiaries of Beneficial Corp., a financial services company specializing in consumer loans. Beneficial sells credit insurance policies in conjunction with its loans. There are four basic types of credit insurance: credit life, credit disability, credit property and loss of income. If the borrower defaults, a credit insurance policy will pay the lender the outstanding balance of the loan.
Plaintiff alleges Beneficial engages in "loan packing," a practice by which lenders sell credit insurance policies along with consumer loans through the use of deceptive or coercive marketing practices. Her complaint asserts that credit insurance offers little or no benefit to borrowers, but primarily protects creditors. In addition, creditors have other financial incentives for selling the insurance, as they may receive commissions as high as 50% of the premium cost. Because the premiums are usually added to the principal of the loan, creditors also receive more interest income.
Plaintiff alleges credit insurance is often marketed through a "captive insurer," an insurance company affiliated with or owned by the creditor. Beneficial Wesco, The Central National Life Insurance Company of Omaha, and the First Central National Life Insurance Company of New York are three subsidiaries of Beneficial Corp. that sell credit insurance. In 1993, $80.7 million in credit insurance premiums were written through Beneficial's insurance subsidiaries and $11.6 million through nonaffiliated insurance companies.
Plaintiff challenges the manner in which Beneficial sells credit insurance policies. She alleges that the typical Beneficial customers are individuals lacking established credit who cannot obtain a loan elsewhere. These individuals often have no knowledge of lending practices and are desperate for money. Beneficial allegedly takes advantage of this vulnerability by misrepresenting the purpose of credit insurance and failing to disclose its hidden benefits for the lender. According to plaintiff, borrowers are given a "negative option" to buy the insurance, since all loans are packaged with credit insurance even if the borrower does not request it.
When the borrower arrives at the loan office to pick up the check, he or she is presented loan documents already filled out to include credit insurance. This makes it appear that the insurance is necessary to obtain the loan. If the borrower questions or objects to the unrequested insurance, the salesperson implies that the borrower will not be given the loan proceeds at that time, but will have to return later. Plaintiff alleges that Beneficial uses these hard sell tactics to exploit the borrower's reluctance to walk away from the loan.
Plaintiff claims she was a victim of Beneficial's coercive tactics. On July 19, 1992, she applied for a $2000 loan from Beneficial to pay for her daughter's college tuition. The application form required her to list, among other things, personal property and household goods. After she was told that her loan was approved, plaintiff returned to Beneficial's office expecting to be issued a $2,000 check. Instead, she was given a form entitled "Disclosure of Credit Costs," to which pre-completed forms for credit life insurance, disability insurance, and personal property insurance were attached. She was also given a Certificate of Insurance for credit life and disability insurance from The Central National Life Insurance Company of Omaha, a Beneficial subsidiary, and a personal property insurance policy from the American Centennial Insurance Company, an unaffiliated company.
The disclosure form identified the "amount financed" as $2,538.47. It identified $335.28 as "Amount Paid to Others on Your Behalf," representing the insurance premiums, and $2,203.19 as "Amount Given to You Directly by Us." The loan was to be repaid in 36 monthly installments of $105 at a 28% annual percentage rate. The form also stated that plaintiff's loan was "secured" by "certain" unidentified "household items." Plaintiff was not told that federal regulations prohibit Beneficial from taking security interests in certain household and personal items. 16 C.F.R. 44.1.
Plaintiff claims she never requested any insurance, nor did Beneficial employees discuss the purpose of or need for insurance before giving her the forms. Plaintiff does not know why she was given $203.19 more than the $2,000 she requested.
Plaintiff prepaid the $2,203.19 shortly after obtaining the loan. Beneficial then sent her four coupons for $100 each, representing the insurance premiums and accrued interest. Plaintiff made two payments but refused to pay anything more. Beneficial sued to recover the two remaining payments but then voluntarily dismissed the case. Plaintiff's lawsuit followed.
The Consumer Fraud Act, N.J.S.A. 56:8-1 et seq., provides:
The 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 ...