The Supreme Court of New Jersey recently issued a decision that extends the applicability of the state’s Retail Installment Sales Act (“RISA”) to service contracts, even those that do not include a financing arrangement. This decision could have a wide reaching effect on companies that provide services to New Jersey consumers – companies that perhaps have not previously worried about the requirements under RISA, believing them not to apply to their line of business.
In the case at hand, plaintiff Henry Sanchez brought a class action claiming, among other things, that defendant The Fitness Factory Group LLC’s gym membership contract charged an improper “initiation” fee that violated RISA. The trial court dismissed the case, and the dismissal was confirmed by the appellate court, which found that RISA only applies to contracts for goods or services that contain a financing arrangement.
In reversing and remanding the case, the New Jersey Supreme Court acknowledged that this was an issue of first impression in the state and engaged in a close analysis of the plain language in RISA to conclude that there was no requirement under the statute that a contract include a financing arrangement in order to trigger RISA.
The Court first concluded that RISA clearly applies to contracts for services, as a retail seller is defined under the statute as, in part, “a person who sells or agrees to sell goods or services” and this unambiguous reading of the text is supported by the purpose of RISA, which is meant to be a broadly construed remedial statute, protecting consumers. Similarly, the Court went on to find that nowhere in the text of the statute was there a requirement that for a contract to be considered a “retail installment contract” it must include a financing charge. The definition of a “retail installment contract” makes no mention of such a requirement, and the legislature has expressly included a financing arrangement requirement in other statutes. Without a clear express condition in the statutory language, the Court declined to read into RISA any requirement of a financing arrangement, stating that to do so would be to rewrite plainly enacted legislation.
In addition, the Court pointed out that in regulating time-price differentials in retail installment contracts, RISA permits a contract to include a financing arrangement, but does not mandate it. The Court found that to read a financing arrangement into the definition of a retail installment contract would make this permissive language, for time-price differentials, superfluous.
The Court acknowledged the point of view of the New Jersey Department of Banking and Insurance (“DOBI”), which in an amicus brief to the court argued that installment contracts that do not contain a financing arrangement, and hence charge no interest, pose very little risk to consumers and, thereby, do not require the protections of RISA. However, the Court found that the plain language of the statute was clear in its definition of a “retail installment contract,” “services,” and “retail seller.” The Court noted, however, that the New Jersey legislature could address this issue in the future, if it disagreed with the Court’s reading of RISA, saying: “Our decision is based solely on the language presented to us in RISA. We leave the policy-based arguments made by DOBI to be considered by the Legislature, which may amend RISA if it so chooses.”
The case marks the first clear articulation by the New Jersey Supreme Court of RISA’s wide applicability. Any companies that provide consumer services to New Jersey consumers, and particularly those that, because they do not provide financing, perhaps previously have not considered New Jersey’s restrictions on retail installment contracts, should pay close attention to this decision and take this opportunity to review their service agreements for compliance under RISA.