Perez_v_RentACenter

HILDA PEREZ, PLAINTIFF-APPELLANT, v. RENT-A-CENTER, INC., DEFENDANT-RESPONDENT

SUPREME COURT OF NEW JERSEY

186 N.J. 188; 892 A.2d 1255

March 15, 2006, Decided

OPINION

Justice LONG delivered the opinion of the Court.

On this appeal, we have been asked to determine whether rent-to-own contracts are subject to certain consumer protection statutes. Specifically, the parties question whether the Retail Installment Sales Act ("RISA"), N.J.S.A. 17:16C-1 to -61; the interest rate cap in the criminal usury statute, N.J.S.A. 2C:21-19; and the Consumer Fraud Act ("CFA"), N.J.S.A. 56:8-1 to -135, apply to such arrangements. The trial judge answered those questions in the negative and the Appellate Division affirmed. Having concluded, based on the plain language of the relevant statutes and established principles of statutory interpretation, that Rent-A-Center's rent-to-own contracts are subject to each of the denominated acts, we now reverse.

I

The rent-to-own industry, in its present iteration, is generally traced back to a "retail appliance store owner whose customers were being denied credit to purchase washers and dryers." Today, rent-to-own is a multi-billion dollar business that consists of

dealers that rent furniture, appliances, home electronics, and jewelry to consumers. Consumers enter into a self-renewing weekly or monthly lease for the rented merchandise, and are under no obligation to continue payments beyond the current weekly or monthly period. At the end of each period, the consumer can continue to rent by paying for an additional period, or can return the merchandise. The lease provides the option to purchase the goods, either by continuing to pay rent for a specified period of time, usually 12 to 24 months, or by early payment of some specified proportion, usually 50 to 60 percent, of the remaining lease payments.

Rent-to-own transactions offer immediate access to household goods for a relatively low weekly or monthly payment, typically without any down payment or credit check. These terms are attractive to many consumers who cannot afford a cash purchase, may be unable to qualify for credit, and are unwilling or unable to wait until they can save for a purchase.

[Federal Trade Commission, Bureau of Economics Staff Report: Survey of Rent-to-Own Customers 1-2 (April 2000)(hereinafter FTC Report).]

Although some consumers enter into rent-to-own transactions to fill a temporary need or to try a product out before buying it, the vast majority are the working poor whose incomes are on the margin of economic stability; they engage in rent-to-own for ownership purposes. In fact, studies, including those by Rent-A-Center, have concluded that between 64% and 70% of all rent-to-own merchandise is ultimately purchased by the customers. FTC Report, supra, at ES-1.

Rent-A-Center is the nation's largest rent-to-own company, with approximately fifty stores in New Jersey alone. Between March 2001 and May 2002, Plaintiff, Hilda Perez, entered into five rent-to-own contracts with Rent-A-Center in order to become the owner of used furniture, a used washer and new dryer, a used DVD player and television, a new computer, and a used large screen television and cabinet. Those transactions were documented by the Appellate Division as follows:

Agreement   Date         Product             Cash           Weekly
Number                                             Price            Rate
34413833   03/03/01   furniture         $ 1,951.43   $38.99

34414122   04/23/01   washer/dryer   987.47        21.99

34414671   08/03/01   DVD/TV         1,160.99      22.99

34415383   11/17/01   computer         2,235.48      42.99

34416433   05/06/02   big-screen        2,966.35   45.99
                                  TV & cabinet

Totals                                             $ 9,301.72   $ 172.95

Agreement   Date        Weeks to   Total                  Amount
Number                    Ownership   Rent-to-Own   Perez
                                                     Cost                  Paid
34413833   03/03/01   91.4      $3,902.76          $2,573.34

34414122   04/23/01   95.3       1,984.90           1,418.71

34414671   08/03/01   92.0       2,321.99           1,264.39

34415383   11/17/01   95.0        4,470.96          1,934.49

34416433   05/06/02   120.0      5,932.71            965.79

Totals                                       $18,613.32    $8,156.72

Under the contracts, Perez paid a pre-calculated weekly rental amount, a portion of which defrayed the price of the goods. She could return the goods at any time and stop making payments. However, in order to purchase them, Perez agreed that she would pay an amount equal to or in excess of their value along with a purchase option price. If Perez chose to purchase the rental property early, she was required to pay a prorated portion of the remaining rental payments and option price. Together, all the items Perez rented had a cash price of $ 9,301.72; however, if she paid the weekly rates and the additional option payments, she would assume ownership having expended $ 18,613.32. The difference between the market value of the goods and their ultimate cost was Rent-A-Center's interest charge for the privilege of buying the products over time. 5 By May 2002, Perez had paid $ 8,156.72. It was at that point that she stopped paying.

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
5 The Appellate Division noted the following findings by Perez's expert:
James Hunt, an actuary, calculated interest rates for several of Perez's rental agreements with Rent-A-Center, assuming she made all payments contemplated by the agreements. He opined that: (1) for the washer and dryer, the annual interest rate was 79.9%; and (2) for the furniture, the annual interest rate was 82.7%. The annual interest rate for the DVD player fell somewhere between 79.9% and 82.7%. Hunt was of the opinion that interest rate calculations were valid even if the items were rented for only one week, as long as there remained the option to buy.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -

Rent-A-Center thereafter filed a small claims complaint seeking money damages against Perez arising out of her failure to pay for or return the rental items. In turn, Perez sued Rent-A-Center in the Superior Court, alleging that her rent-to-own contracts violated RISA and the CFA because the contracts imposed an interest rate in excess of the 30% permitted under the criminal usury statute. Rent-A-Center counterclaimed for breach of contract and conversion. In 2004, Perez moved for partial summary judgment declaring the applicability of RISA and the usury cap, and Rent-A-Center filed a cross-motion for dismissal of the complaint. The trial judge granted the relief sought by Rent-A-Center and dismissed Perez's complaint in its entirety.

Perez appealed arguing that RISA, by its plain terms, applies; and that the usury limitations are applicable to Rent-A-Center's operations. The Appellate Division rejected Perez's argument and ruled in favor of Rent-A-Center on the merits. We granted Perez's petition for certification.

IV

We turn next to the merits and address the question of whether the rent-to-own contracts between Rent-A-Center and Perez are "retail installment contract[s]" within the meaning of RISA. N.J.S.A. 17:16C-1(b). We begin with that issue because, although RISA itself does not expressly contain an interest rate cap, Perez argues that it is the vehicle through which the Legislature imposed the 30% cap in the criminal usury statute on retail installment sales.

A.

Historically, the law treated the taking of interest in connection with the sale of goods as entirely different from the taking of interest on a loan of money per se. Indeed, in the nineteenth and early twentieth centuries, courts first distinguished between the two kinds of loans and decided that the latter required regulation but the former did not. The rationale behind those cases was the notion that the compulsion facing an individual who owes or needs money is much more compelling than that motivating a person who seeks to buy goods, the latter having the option of foregoing the purchase. On that basis, courts concluded that although money lenders were subject to the usury laws, those who made loans to sell their merchandise were not.

The idea that the two types of loans were distinct was reflected in the judicial coining of the term "time price differential." Courts used that term to refer to interest incurred in connection with the time sales of goods thus guaranteeing that such sales would escape the usury statutes that by their terms only governed "interest."

Legal scholars have challenged the economic basis for drawing a distinction between interest and a time price differential--concluding that the time price differential is nothing more than interest on a loan in the amount of the purchase price extended by a seller to a borrower. However, the view that the time price doctrine insulated retail installment sales from usury continued to have currency in America through the mid-twentieth century. In fact, the charges associated with the credit sale of goods went generally unregulated up until the 1950s. At that point, in response to the drumbeat of scholarly criticism and consumer complaints, some states, including New Jersey, recognized that the credit sale of goods required regulation and began to adopt retail installment sales acts that set interest rate limits on credit sales transactions. Through the incorporation of interest rate caps, those enactments effectively repudiated the historic treatment accorded the credit sale of goods and essentially replaced the usury laws that hadbeen previously declared off-limits.

Like other state initiatives, New Jersey's RISA, which became law in 1960, was "part of a package of laws designed to protect consumers from overreaching by others, to protect consumers from overextending their own resources and also to promote the availability of financing to purchase various goods and services."

B.

At issue is whether Perez's transaction with Rent-A-Center constitutes a retail installment sales contract. RISA defines a "retail installment contract" as follows:

"Retail installment contract" means any contract, other than a retail charge account or an instrument reflecting a sale pursuant thereto, entered into in this State between a retail seller and a retail buyer evidencing an agreement to pay the retail purchase price of goods or services, which are primarily for personal, family or household purposes, or any part thereof, in two or more installments over a period of time. This term includes a security agreement, chattel mortgage, conditional sales contract, or other similar instrument [emphasis added] and any contract for the bailment or leasing of goods by which the bailee or lessee agrees to pay as compensation a sum substantially equivalent to or in excess of the value of the goods, and by which it is agreed that the bailee or lessee is bound to become, or has the option of becoming, the owner of such goods upon full compliance with the terms of such retail installment contract.

The first sentence of the Act describes a covered sale. Briefly, the contract must be entered into between a retail seller and a retail buyer; it must evidence an agreement to pay the retail purchase price of goods in installments; and the goods must be for personal, family, or household use. The second sentence of the Act is a catch-all by which the Legislature declared that instruments analogous but not identical to pure retail installment sales would also fall within the Act. By way of example, the Legislature named security agreements, chattel mortgages, and conditional sales. Also included was the category of "similar instruments," which was obviously intended to sweep in agreements that might not squarely fit into one of the previously described categories but which approximated them. Certain leases were included as well, presumably because the Legislature recognized that a transaction denominated as a lease could be, in substance, a retail installment sale. The question presented is whether Perez's rent-to-own contracts with Rent-A-Center are instruments covered by RISA.

It is uncontroverted that the leased goods at issue here are of the type described in RISA--for family, personal, or household use and that that provision of the Act requires no further explication by us. Neither are the definitions of "retail seller" and "retail buyer," standing alone, of special interest. RISA defines a "retail seller" as a person who sells or agrees to sell goods or services under a retail installment contract or a retail charge account to a retail buyer, and shall include a motor vehicle installment seller.

RISA defines a "retail buyer" as

    a person who buys or agrees to buy goods or services from a retail seller, not for the purpose of resale, pursuant to a retail installment contract or retail charge account.

As the Appellate Division acknowledged, those "definitions are circular because they refer back to the phrase 'retail installment contract,' which is a separately defined term under RISA." In other words, whether Rent-A-Center fits the definition of "retail seller" and Perez fits the definition of "retail buyer" depends on whether their transaction is consistent with RISA's description of a "retail installment contract." That issue of statutory interpretation is the nub of the case.

C.

We turn again to the second sentence of N.J.S.A. 17:16C-1(b):

This term includes a security agreement, chattel mortgage, conditional sales contract, or other similar instrument and any contract for the bailment or leasing of goods by which the bailee or lessee agrees to pay as compensation a sum substantially equivalent to or in excess of the value of the goods [emphasis added], and by which it is agreed that the bailee or lessee is bound to become, or has the option of becoming [emphasis added], the owner of such goods upon full compliance with the terms of such retail installment contract.

Rent-A-Center first argues, and the Appellate Division agreed, that the lease with Perez falls outside of RISA because it does not reflect "an absolute and unequivocal obligation on the part of Perez to purchase the items she leased." We disagree. There is nothing in RISA that mandates an "absolute and unequivocal obligation" to purchase. Indeed, the last clause of N.J.S.A. 17:16C-1(b) says just the opposite. It states that a RISA contract includes a lease, pursuant to which the bailee or lessee is "bound to become or has the option of becoming, the owner of such goods upon full compliance with the terms of such retail installment contract." Obviously, if the lessee has the "option" to purchase goods, then, by definition, he or she has the "option" not to purchase them. Accordingly, reading the statute as a whole, it seems clear that the Legislature never intended an "absolute" or "unequivocal" obligation on the part of the customer to buy the goods.

Alternatively, Rent-A-Center contends that even if RISA does not require an absolute obligation to purchase the goods, it plainly requires an obligation by the lessee to pay "a sum equivalent to or in excess of the retail value of the goods." According to Rent-A-Center, that is a condition separate from the option to purchase, as evidenced by the Legislature's conjoining the phrases with the word "and." Because Rent-A-Center's leases do not obligate a lessee to pay a sum certain and the lessee is free to cancel at any time without having incurred debt, Rent-A-Center maintains that the transaction falls outside the plain language of RISA.

Perez counters that she agreed to pay "a sum substantially equivalent to or in excess of the value of the goods" in order to exercise the option to purchase, and that that broadly satisfies the statutory language. She further argues that the right to cancel is of no consequence.

Certainly, it would be fair to say that in this respect Perez's rent-to-own contracts are not a perfect fit with the words of the statute. Consequently, we are faced with the problem recognized by Chief Justice Weintraub in New Capitol Bar & Grill Corp. v. Div. of Emp. Sec., when he said:

It is frequently difficult for a draftsman of legislation to anticipate all situations and to measure his words against them. Hence cases inevitably arise in which a literal application of the language used would lead to results incompatible with the legislative design.

Our obligation in such a circumstance is to interpret the statute reasonably to serve its apparent legislative purpose. In furtherance of that goal, we long ago established that

in the quest for the intention, the letter gives way to the rationale of the expression. The words used may be expanded or limited according to the manifest reason and obvious purpose of the law. The spirit of the legislative direction prevails over the literal sense of the terms. The particular words are to be made responsive to the essential principle of the law. When the reason of the regulation is general, though the provision is special, it has a general acceptation. The language is not to be given a rigid interpretation when it is apparent that such meaning was not intended. The rule of strict construction cannot be allowed to defeat the evident legislative design. The will of the lawgiver is to be found, not by a mechanical use of particular words and phrases, according to their actual denotation, but by the exercise of reason and judgment in assessing the expression as a composite whole. The indubitable reason of the legislative terms in the aggregate is not to be sacrificed to scholastic strictness of definition or concept. It is not the meaning of isolated words, but the internal sense of the law, the spirit of the correlated symbols of expression, that we seek in the exposition of a statute. The intention emerges from the principle and policy of the act rather than the literal sense of particular terms, standing alone.

In enacting RISA, the stated legislative purpose was protection of the public interest through the regulation of the charges associated with the time sale of goods. By including conditional sales, chattel mortgages, security interests, leases, and similar instruments within RISA's protective ambit, the Legislature signaled that it intended to sweep into the Act as many cognate agreements as possible, even those that did not strictly fall within a denominated category. That broad mandate, along with the well-established notion that HN14Go to this Headnote in the case.remedial statutes like RISA should be liberally construed to achieve their salutary aims, Barratt v. Cushman & Wakefield, 144 N.J. 120, 127, 675 A.2d 1094 (1996), require questions regarding the applicability of the statute to be resolved in favor of consumers for whose protection RISA was enacted.

So instructed, we are satisfied that the language of RISA was intended to cover agreements like the ones between Rent-A-Center and Perez. Like most rent-to-own consumers, Perez entered into the transactions with Rent-A-Center in order to become the owner of the goods. She took possession of the goods pursuant to instruments that renewed automatically and that were reflected on Rent-A-Center's books, not as weekly leases, but as long term arrangements of 90 to 120 weeks, respectively. A portion of each of Perez's payments was assigned to defray the cost of the goods. The remainder of each payment was interest for the privilege of paying for the goods in installments. Perez "agreed" that she would have to pay the value of the goods in order to own them. In fact, she would receive title upon the fulfillment of the lease provisions: payment of the value of the goods and exercise of the option by the proffer of the option price. Although Perez could choose not to complete the contract, the entire transaction was structured with ownership as its goal. Thus, on the continuum from pure lease to pure sale, we view Perez's arrangements with Rent-A-Center as closer to the latter than to the former.

We are simply not satisfied that the cancellation provision so altered the fundamental nature of the transaction that it insulated Perez's leases from the protections of RISA. That conclusion is bolstered by the fact that the majority of rent-to-own contracts are intended for and in fact result in ownership, not cancellation. To exclude the many purchasers from the protective sweep of RISA by providing a cancellation option that few would exercise would be an intolerably narrow interpretation of a statute limned for consumer protective purposes. As the Minnesota Supreme Court observed of rent-to-own contracts like the one before us:

[A]lthough these transactions purport to be short-term leases, they operate in substance much like ordinary installment sales. Consumers who purchase goods through rent-to-own agreements may not incur debt, but they still implicitly pay interest in return for the ability to pay for goods over time. Moreover, rent-to-own customers may not have an absolute obligation to repay a principal amount, but their situation is analogous to that of ordinary buyers on credit in that they must either forfeit possession of a good or continue paying for it.

We agree, and hold that RISA applies to the rent-to-own contracts at issue here.

VII

The judgment of the Appellate Division is reversed. The matter is remanded to the trial judge for reinstatement of Perez's complaint and for such further proceedings as are warranted.

CHIEF JUSTICE PORTIZ and JUSTICES LaVECCHIA, ZAZZALI, ALBIN and WALLACE join in JUSTICE LONG's opinion. JUSTICE RIVERA-SOTO filed a separate opinion, concurring in part and dissenting in part.

DISSENT BY: RIVERA-SOTO

[To] the extent the majority concludes that "RISA applies to the rent-to-own contracts at issue here [and] embraces plaintiff's contention that "the 30% interest rate cap in the criminal usury statute applies to the time price differential in RISA; and holds that plaintiff's individual and class claims under the Consumer Fraud Act must be reinstated I respectfully dissent for substantially the reasons expressed in Judge Petrella's thoughtful and reasoned opinion below. I add only the following.

Many may consider the rent-to-own industry abhorrent. However, setting aside that particularly noxious version of noblesse oblige, the fact remains that merchants that offer goods on a rent-to-own basis nevertheless satisfy an important need. The Federal Trade Commission has acknowledged that

[r]ent-to-own transactions provide immediate access to household goods for a relatively low weekly or monthly payment, typically without any down payment or credit check. Consumers enter into a self-renewing weekly or monthly lease for the rented merchandise, and are under no obligation to continue payments beyond the current weekly or monthly period. . . . These terms are attractive to many consumers who cannot afford a cash purchase, may be unable to qualify for credit, and are unwilling or unable to wait until they can save for a purchase. Some consumers also may value the flexibility offered by the transaction, which allows return of the merchandise at any time without obligation for further payments or negative impact on the customer's credit rating. Other consumers may rent merchandise to fill a temporary need or to try a product before buying it. [Federal Trade Commission, Bureau of Economics Staff Report: Survey of Rent-to-Own Customers ES-3 (April 2000).]

Moreover, the New Jersey Legislature has similarly recognized the value and contributions of this industry in a most eloquent way: by simply leaving it alone. As the Appellate Division noted in its Appendix, "[v]irtually every other state in the nation, as well as the District of Columbia, has adopted a statute explicitly regulating rent-to-own contracts as a distinct transactional form. The only exceptions are New Jersey, North Carolina and Wisconsin. "

If there is a need to regulate the rent-to-own industry--a need certainly not demonstrated in this record--then the source of that regulation should be legislative or executive action, and not a cobbled-together judicial cure for a perceived but unsubstantiated ill. Because a rent-to-own contract is not a "retail installment contract" under RISA, the provisions of RISA simply are inapplicable by their own terms. Further, because the criminal usury statute is not intended to apply to a time-price differential, that is, the difference between the cash price of an item and the cost to purchase that same item on credit, it similarly does not apply to rent-to-own contracts. Finally, because plaintiff's individual and class Consumer Fraud Act claims are based on her RISA and criminal usury claims, those too should fail.

For the foregoing reasons, I respectfully dissent.