The opinion of the Court was delivered by Handler, J. Justices Pollock, O'hern, Garibaldi, Stein and Coleman join in Justice Handler's opinion. Chief Justice Poritz did not participate.
The opinion of the court was delivered by: Handler
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
Jeanne C. Lemelledo v. Beneficial Management Corp. of America (A-107-96)
Argued February 18, 1997 -- Decided July 3, 1997
HANDLER, J., writing for a unanimous Court.
The issue before the Court is whether the New Jersey Consumer Fraud Act (CFA) applies to lenders who engage in "loan packing." Loan packing refers to a practice 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 buyer does not want.
On or about July 19, 1992, Jeanne Lemelledo applied and was approved for a $2000 loan from Beneficial Management Corp. and Beneficial New Jersey (collectively, Beneficial). Instead of receiving a $2000 check, Lemelledo was given several forms, including a loan contract for $2,538.47 and a check payable to her for $2203.19. The difference between the amount on the contract and the amount on the check was listed as "Amount Paid to Others on Your Behalf" and consisted of credit insurance premiums to be paid initially by Beneficial but added to the loan principal to be paid by Lemelledo. The premiums -- credit property insurance ($170.10), credit disability insurance ($123.98) and credit life insurance (41.20) -- covered the possibility that Lemelledo would default on her loan payments.
Beneficial offers the credit insurance policies to all borrowers to better assure the repayment of its loans. Borrowers receive a form from Beneficial entitled "Disclosure of Credit Costs," which, as required by law, states that the insurance is not a prerequisite to obtaining credit and that the borrower can purchase the insurance from any insurer. Although Lemelledo received the Disclosure statement, she claims that Beneficial implicitly led her to believe that if she did not purchase the insurance, she would not get the loan.
Shortly after receiving the loan proceeds, Lemelledo repaid the $2203.19 in full. Thereafter, Beneficial sent her four $100 payment coupons to cover the insurance premiums plus interest. She made the first two payments but refused to pay the last two payments. In August 1994, Beneficial sued Lemelledo to recover the remaining balance, but voluntarily dismissed that claim several months later. After the dismissal, Lemelledo instituted a class-action suit in the Law Division, alleging violations of the Consumer Fraud Act (CFA) and the Consumer Loan Act (CLA). She also alleged breach of contract, fraudulent inducement, conversion, common-law fraud, and criminal usury.
Beneficial moved to dismiss the CFA, CLA and usury claims. The Law Division granted the motion as to the CFA and usury claims, concluding that the CFA did not apply to loan packing. On appeal, the Appellate Division reversed and reinstated the CFA claim. The Appellate Division affirmed the dismissal of the usury claim.
The Supreme Court granted Beneficial's motion for leave to appeal the reinstatement of the CFA claim.
The New Jersey Consumer Fraud Act applies to lenders who engage in loan packing.
1. The CFA is intended to protect consumers by prohibiting deceptive, fraudulent and unconscionable practices and dealings in the marketing or sale of merchandise and real estate. The language of the CFA evinces a clear legislative intent that its provisions be applied broadly in order to accomplish the Act's remedial purposes. Because the broad language of the CFA appears to include both lending and insurance-sales practices, its terms also include the sale of insurance in conjunction with lending, otherwise known as loan packing. (pp. 7-10)
2. Daaleman v. Elizabethtown Gas Co. does not stand for the bright-line proposition that a regulated practice is automatically covered by the CFA or automatically exempt from it based solely on the number of agencies regulating the practice. A court must look to whether a "real possibility" of conflict would exist if the CFA were to apply to a particular practice, regardless of the number of agencies with regulatory jurisdiction over the practice. (pp. 10-14)
3. The CFA's recognition of cumulative remedies and its empowerment of citizens as private attorneys general reflect an apparent legislative intent to enlarge fraud-fighting authority and to delegate that authority to various governmental and non-governmental entities. The Court will not undermine the CFA's enforcement structure by carving out exemptions for each fraudulent practice that is at the same time regulated by another source of law. (pp. 14-16)
4. In order to overcome the presumption that the CFA applies to the covered activity, a court must be satisfied that a direct conflict exists between the application of the CFA and application of the other regulatory scheme(s). The other source or sources of regulation must deal specifically, concretely and pervasively with the activity, implying a legislative intent not to subject parties to multiple regulations that, as applied, will work at cross-purposes. The conflict must be patent and sharp and not simply create a possibility of incompatibility. (pp. 16-18)
5. Beneficial points to four statutes regulating credit-insurance sales in New Jersey that it believes creates enough of a conflict with the CFA sufficient to trigger a CFA exemption for loan packing. They are: the CLA, the Insurance Trade Practices Act, the Insurance Producer Licensing Act and the Credit Life and Health Insurance Act. At least in part, all four of these statutes have the same general goal as the CFA -the prevention of fraud and misrepresentation in the sale of credit and/or insurance. The CFA complements these statutes and does not inhibit their enforcement. Despite the existence of overlapping agency authority for the enforcement of the CFA, the Division of Consumer Affairs and the Department of Banking and Insurance will be able to coordinate their regulation of loan packing so as not to subject lenders to conflicting duties and duplicative regulatory burdens. (pp. 18-23)
Judgment of the Appellate Division reinstating the Consumer Fraud Act claim is AFFIRMED and the matter is REMANDED to the Law Division for proceedings consistent with this opinion.
JUSTICES POLLOCK, O'HERN, GARIBALDI, STEIN and COLEMAN join in JUSTICE HANDLER'S opinion. CHIEF JUSTICE PORITZ did not participate.
The opinion of the Court was ...