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Lemelledo v. Benefit Mgmt. Corp.

Supreme Court of New Jersey

February 18, 1997, Argued ; July 3, 1997, Decided

A-107 September Term 1996


 [**548]  [*259]   The opinion of the Court was delivered by


"Loan packing" refers to [***8]  a practice on the part of commercial lenders that involves increasing the principal amount of a loan by combining the loan with loan-related services, such as credit  [*260]  insurance, that the borrower does not want. In this case, a borrower secured a commitment from a commercial lender to provide a loan to defray the costs of college tuition for the borrower's daughter. When the borrower received the loan proceeds, the principal amount to be repaid included unrequested and unexpected premiums for credit insurance.

The borrower brought a class-action lawsuit challenging the extra charges affixed to [**549]  her loan, contending that the practice was illegal and thus entitled her to damages. The specific issue raised in this appeal is whether the New Jersey Consumer Fraud Act applies to lenders who engage in "loan packing."

On or about July 19, 1992, Jeanne Lemelledo ("plaintiff") applied for a $ 2,000 loan for her daughter's college education from defendants Beneficial Management Corp. and Beneficial New Jersey (collectively referred to as "defendant"). Shortly after receiving the application, defendant notified plaintiff that the loan had been approved in full.

Plaintiff went to defendant's [***9]  office with the expectation of receiving a check in the amount of $ 2,000. Instead, however, defendant presented her with numerous forms, including a loan contract for $ 2,538.47 and a check payable to her for $ 2,203.19. It is unclear why plaintiff received $ 203.19 more than she had requested in her application. The difference between the amount in the loan contract and the amount of the loan check ($ 335.28) was listed as "Amount Paid to Others on Your Behalf" and consisted of credit-insurance premiums, to be paid initially by defendant and added to the loan principal to be repaid by plaintiff. The premiums--credit property insurance ($ 170.10), credit disability insurance ($ 123.98), and credit life insurance ($ 41.20)--covered the possibility that plaintiff would default on her loan repayments. The loan, including the insurance premiums, was provided at an interest rate of twenty-eight percent; plaintiff was to make thirty-six monthly payments of $ 105.00 each.

 [*261]  Defendant apparently offers such insurance policies to all borrowers in order to provide greater assurance that the loans will be repaid. It sells the policies through either one of its insurance subsidiaries or an [***10]  unaffiliated insurance company and receives a forty-percent commission from each sale. Defendant also receives substantial interest income from the sales because the amount of the insurance premium is incorporated into the loan principal and accrues interest, in this case at a rate of twenty-eight percent. When defendant sells the policies to borrowers, it provides them with a form entitled "Disclosure of Credit Costs," which states that the insurance is not a prerequisite to obtaining credit and that, if the borrower chooses to purchase the insurance, she can do so from any insurer. Those disclosures are required by law. N.J.S.A. 17:10-14.1a (replaced by N.J.S.A. 17:11C-21d).

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150 N.J. 255 *; 696 A.2d 546 **; 1997 N.J. LEXIS 195 ***


Prior History:  [***1]  On appeal from the Superior Court, Appellate Division, whose opinion is reported at 289 N.J.Super. 489, 674 A.2d 582 (1996).


Consumer, lender, borrower, fraudulent, exemption, packing, merchandise, premiums, license, advertisement, cumulative, replaced, defer

Criminal Law & Procedure, Fraud, False Pretenses, Elements, Real Property Law, Purchase & Sale, General Overview, Torts, Business Torts, Fraud & Misrepresentation, Business & Corporate Compliance, Sales of Goods, Title, Creditors & Good Faith Purchasers, Civil Procedure, Jurisdiction, Subject Matter Jurisdiction, Governments, Legislation, Interpretation, Types of Statutes