Perez v. Rent-A-Center, Inc.
2006 N.J. LEXIS 176, 892 A.2d 1255, 186 N.J. 188 (2006)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Rent-to-own contracts, where a lessee agrees to pay a sum substantially equivalent to or in excess of the goods' value with an option to purchase, constitute retail installment contracts subject to the Retail Installment Sales Act (RISA), the 30% interest rate cap of the criminal usury statute, and the Consumer Fraud Act (CFA) in New Jersey.
Facts:
- Rent-to-own companies rent furniture, appliances, home electronics, and jewelry to consumers through self-renewing weekly or monthly leases, offering immediate access without a down payment or credit check.
- The majority of rent-to-own customers, often the working poor, engage in these transactions with the primary intent of ownership, and studies show a high percentage of merchandise is ultimately purchased.
- Rent-A-Center is the largest rent-to-own company in the United States, with approximately fifty stores in New Jersey.
- Between March 2001 and May 2002, Hilda Perez entered into five rent-to-own contracts with Rent-A-Center for 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.
- Under these contracts, Perez paid a pre-calculated weekly rental amount, which included a portion to defray the goods' price, and she could return the goods at any time to stop payments.
- To purchase the items, Perez agreed to pay an amount equal to or in excess of their value, plus a purchase option price; for example, items with a total cash price of $9,301.72 would cost her $18,613.32 if she paid weekly rates and additional option payments to assume ownership.
- By May 2002, Perez had paid $8,156.72 and subsequently stopped making payments on the contracts.
Procedural Posture:
- Rent-A-Center filed a small claims complaint seeking money damages against Hilda Perez, which was later voluntarily dismissed.
- Hilda Perez sued Rent-A-Center in the Superior Court of New Jersey, alleging violations of the Retail Installment Sales Act (RISA) and the Consumer Fraud Act (CFA) due to interest rates exceeding the criminal usury statute's 30% cap.
- Rent-A-Center counterclaimed for breach of contract and conversion.
- Perez moved for partial summary judgment, seeking a declaration that RISA and the usury cap were applicable to the contracts.
- Rent-A-Center filed a cross-motion for dismissal of Perez's complaint.
- The trial judge granted Rent-A-Center's cross-motion, dismissing Perez's complaint in its entirety.
- Perez appealed the trial court's decision to the New Jersey Appellate Division, arguing that Rent-A-Center was collaterally estopped from defending against the RISA claim, that RISA and usury limitations applied, and that the CFA claim was improperly dismissed.
- The Appellate Division rejected Perez's collateral estoppel argument and ruled in favor of Rent-A-Center on the merits regarding the applicability of RISA and usury limitations.
- The Supreme Court of New Jersey granted Perez's petition for certification.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Are rent-to-own contracts, where the lessee pays a sum substantially equivalent to or in excess of the goods' value and has an option of becoming the owner, considered "retail installment contracts" subject to the Retail Installment Sales Act (RISA), the 30% interest rate cap of the criminal usury statute (N.J.S.A. 2C:21-19), and the Consumer Fraud Act (CFA) in New Jersey?
Opinions:
Majority - Justice LONG
Yes, rent-to-own contracts, where the lessee pays a sum substantially equivalent to or in excess of the goods' value and has an option to purchase, are considered "retail installment contracts" subject to the Retail Installment Sales Act (RISA), the 30% interest rate cap of the criminal usury statute, and the Consumer Fraud Act (CFA) in New Jersey. The Court found that Rent-A-Center's contracts fit within RISA’s broad definition (N.J.S.A. 17:16C-1(b)), specifically including leases where the lessee has the “option of becoming” the owner upon full compliance and agrees to pay a sum substantially equivalent to or in excess of the goods’ value. The Court rejected Rent-A-Center's argument that an “absolute and unequivocal obligation” to purchase was required, emphasizing that remedial statutes like RISA should be liberally construed to achieve their consumer protective aims. The transactions were deemed akin to “conditional sales” or “similar instruments” intended to be swept in by the statute, preventing “subtle distinctions” from defeating the law’s purpose, especially since the majority of such contracts result in ownership. Regarding interest rates, the Court held that the 30% cap in the criminal usury statute (N.J.S.A. 2C:21-19(a)) applies to the time price differential in RISA contracts. Although a 1981 legislative bill (S. 3005) removed specific interest rate caps in various lending statutes, including RISA, allowing parties to “agree to” rates, a companion bill (S. 3101) enacted simultaneously lowered the criminal usury cap to 30% and explicitly stated its supremacy over any law permitting “agreed to” rates. Reading these statutes in pari materia, supported by Governor Byrne’s signing statement, the Court concluded a legislative intent to allow flexible rates within an absolute 30% ceiling, abrogating the historical “time price doctrine” exception to usury. Finally, the Court affirmed the applicability of the Consumer Fraud Act (CFA), citing N.J.S.A. 56:8-2.13, which mandates cumulative application of the CFA with other statutes unless a “direct and unavoidable conflict” exists, which was not present between RISA and the CFA. Therefore, the CFA claim, being intertwined with the RISA and usury cap claims, was also reinstated.
Dissenting - Justice RIVERA-SOTO
No, rent-to-own contracts are not "retail installment contracts" subject to RISA, nor is the time price differential in such contracts subject to the 30% interest rate cap in the criminal usury statute, and consequently, the Consumer Fraud Act claims should also fail. Justice Rivera-Soto dissented, largely adopting the reasoning of the Appellate Division. The dissent argued that Rent-A-Center’s contracts are not retail installment contracts under RISA because they do not impose an absolute and unequivocal obligation on the part of the lessee to purchase the items, as lessees are free to cancel at any time without incurring debt. It emphasized that rent-to-own transactions are short-term leases, not sales, and provide a valuable service to consumers unable to qualify for traditional credit. The dissent noted that New Jersey, unlike most other states, had not explicitly regulated the rent-to-own industry, suggesting a legislative intent to leave it alone. Furthermore, the dissent contended that the criminal usury statute is not intended to apply to a time-price differential, which is distinct from interest on a loan. Therefore, without RISA and the usury cap applying, the Consumer Fraud Act claims, which were based on these underlying statutes, should similarly fail.
Analysis:
This landmark decision fundamentally reshaped the regulatory landscape for rent-to-own transactions in New Jersey, extending the full protections of RISA, the criminal usury statute, and the CFA to agreements previously operating in a regulatory gray area. By piercing through the “lease” facade, the Court recognized the substantive reality of these transactions as consumer credit sales, preventing companies from circumventing vital consumer safeguards. The ruling provides crucial legal recourse for vulnerable consumers who often use rent-to-own services due to limited financial alternatives, ensuring they are protected from exorbitant interest rates and unconscionable practices. This case reinforces the principle that courts will interpret remedial statutes broadly to fulfill their legislative purpose, particularly when sophisticated entities use contractual drafting to evade regulatory oversight.
