Opinion ID: 1406886
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Heading Rank: 2

Heading: The Application of the Unruh Act

Text: The Unruh Act was enacted in 1959 for the purpose of correcting various abuses incident to the rapid and widespread growth of the consumer credit industry. ( Morgan v. Reasor Corp. (1968) 69 Cal.2d 881, 889, 897-898 [73 Cal. Rptr. 398, 447 P.2d 638]; Comment (1970) 58 Cal.L.Rev. 210; Report of the Subcommittee on Lending and Fiscal Agencies, 2 Appendix to Assem. J. (1959 Reg. Sess.) p. 9.) The act proscribes a variety of unfair practices such as the unauthorized alteration of retail installment contracts, the assessment of excessive finance charges, inadequate disclosure of information to consumers, and unfair garnishment and repossession practices. Violation of the act may result in the imposition of criminal penalties (Civ. Code, § 1812.6), forfeiture of finance or delinquency charges ( id., § 1812.7), and punitive damages ( id., § 1812.9). The act applies to any retail installment contract, which is defined as a contract for a retail installment sale between buyer and seller providing for either (a) repayment in installments, subject to a finance charge or other consideration, or (b) payment in four or more installments. (Civ. Code, § 1802.6.) Seller is defined as ... a person engaged in the business of selling goods or furnishing services to retail buyers. ( Id., § 1802.3, italics added.) The term services means ... work, labor and services, for other than a commercial or business use, including services furnished in connection with ... the providing of insurance, ... ( Id., § 1802.2, italics added.) (2a) We conclude, as developed below, that, under the facts alleged in this case, Bank's furnishing of financing services in close connection with plaintiffs' installment purchase of automobile insurance may reasonably be construed to lie within the definition of services under section 1802.2 and, accordingly, may be subject to regulation under the act. Initially, we note that a 1959 opinion of the California Attorney General had concluded that a loan to finance payment of insurance premiums was not a service under section 1802.2. (34 Ops.Cal.Atty. Gen. 288, 289 (1959).) While that opinion is entitled to great respect ( Wenke v. Hitchcock (1972) 6 Cal.3d 746, 751-752 [100 Cal. Rptr. 290, 493 P.2d 1154]), it is noteworthy that the opinion did not focus upon, indeed ignored, the language of section 1802.2 which defines services as including, specifically, services furnished in connection with ... the providing of insurance, ... Instead, the opinion emphasized that the Unruh Act was intended to apply only to transactions involving a retail installment contract executed between retail buyers and sellers. We are persuaded, however, by reason of the act's interlocking definitions of retail installment contract, seller, and services, mentioned above, that it is at least arguable that an agreement to finance an automobile insurance policy through installment payments constitutes a service transaction covered by the act. As we stated in Morgan v. Reasor Corp., supra, 69 Cal.2d 881, in rejecting an attempt to construe narrowly the act's definition of services: Section 1802.2 clearly includes all services provided for personal purposes, except for the specifically enumerated exceptions [not applicable here]; obviously we do not assume that the Legislature intended exceptions other than those it explicitly specified. (P. 888, italics added by court.) Nevertheless, we need not, and do not, decide at this time whether the Unruh Act applies to all routine insurance financing transactions, for plaintiffs have alleged additional facts from which it reasonably may be inferred that defendant Bank actually engaged in providing insurance to them, conduct which would have fallen within the act's scope, by reason of the definition of services in section 1802.2. (We note, in passing, a 1967 opinion of the Attorney General which explains that the word services in that section would include providing the insurance policy itself, as well as providing collateral services in connection therewith. (50 Ops.Cal.Atty.Gen. 110 (1967).)) According to plaintiffs' complaint, both Bank and Roberts are engaged in the retail sale of insurance for credit, and plaintiffs purchase[d] an insurance policy from them. Further, while the above may be conclusionary language, plaintiffs alleged in addition that Bank's financing activities in several significant respects were intimately linked with the insurance purchase transaction. Bank allegedly furnished broker Roberts, on a regular basis, with printed contract forms containing the terms which govern credit sales of automobile insurance. These forms bore the name and address of Bank, and among other things, provided (1) for a down payment of at least 20 percent of the cost of the insurance, a sum paid to Bank in consideration for financing the insurance premium; (2) for assignment of the policy to the Bank as security, with Bank retaining the right to cancel the policy in the event of nonpayment; and (3) for payment of installments directly to Bank, rather than to Roberts. In addition, plaintiffs alleged that Roberts regularly used these forms in its business, that it required purchasers of automobile insurance, such as plaintiffs, to finance their purchases through Bank, that Bank exercised substantial control over Roberts in determining which policies could be purchased on credit, and in establishing the terms of the policy and credit sale, that Roberts acted as a conduit for the placing of the installment contracts with Bank, and that Bank shared the profits from these contracts with Roberts and paid it a fee for all purchases procured by Roberts which met Bank's requirements. The foregoing allegations, if proven, would support a finding that defendants Roberts and Bank were jointly engaged in the business of providing automobile insurance within the meaning of section 1802.2. As we have previously observed, the legislative policy underlying the act is the protection of retail consumers from the documented abuses which plagued the consumer credit field. In the past we have acknowledged this protective policy and have repeatedly held that the act's provisions should be liberally construed to protect consumers, with a view toward expanding, rather than limiting, its coverage. ( Vasquez v. Superior Court (1971) 4 Cal.3d 800, 823 [94 Cal. Rptr. 796, 484 P.2d 964, 53 A.L.R.3d 513]; Morgan v. Reasor Corp., supra, 69 Cal.2d 881, 889.) In Morgan, for example, we reaffirmed the earlier rule (see Coml. Credit Corp. v. Orange Co. Mach. Works (1950) 34 Cal.2d 766 [214 P.2d 819]) that a close connection between the seller of goods and the finance company to which the installment contract is assigned may result in treating the finance company as a party to the original transaction, subject to those statutory restrictions applicable to such parties. We recently summarized the close connection rule in Vasquez, in the following manner: ... [I]t has long been settled in California that a financial institution may be denied the status of a holder in due course because of its close connection with the seller. [Citations.] In Commercial Credit [ supra ] we held that since the assignee of a contract and note advanced money to the seller with the understanding that these instruments would be assigned to it, supplied the contract forms to the seller, and actively participated in the transaction from its inception, it could not claim holder-in-due-course status. (4 Cal.3d at p. 822; see also Glaire v. La Lanne-Paris Health Spa, Inc. (1974) 12 Cal.3d 915, 924 [117 Cal. Rptr. 541, 528 P.2d 357] [... a finance company cannot shed the duties and responsibilities of a lender by accepting the assignment of contracts from a seller with which it is intimately connected.]) Bank points out that both the Morgan and Glaire cases involved a close connection between the finance company and the seller of goods. Stressing the fact that since the complaint herein failed to allege any relationship between itself and the insurer which actually issued the subject policy, Bank and its amici argue that Bank cannot thereby be deemed a seller of insurance. It notes that the parties to an insurance contract are the insurer and the insured only; that the complaint does not allege that Bank is the seller of the insurance; that if not a seller it cannot be subject to the Unruh Act; and that Bank's interest in the policy is that of a security holder at best. Yet, given the alleged close connection between Bank and broker Roberts, Bank's asserted direct role in arranging and supervising the transaction, and its alleged retention of substantial control over, and interest in, the policy of insurance, we conclude that the complaint adequately alleged facts from which the trier of fact might reasonably infer that Bank provided insurance within the meaning of section 1802.2 of the Unruh Act. We do not ignore the fact that plaintiffs attached as an exhibit to their complaint a copy of an agreement between them and Bank which agreement on its face, purports to be a loan instrument rather than an installment purchase contract. The agreement, an Insurance Premium Financing Installment Note, Security Agreement and Disclosure Statement, provides among other things that the borrower promises to pay Bank a specified sum in installments, in consideration of Bank's payment of the insurance premiums, and that the borrower assigns to Bank as security for that promise the policy together with all rights to cancel the policy and all proceeds or return premiums due or to become due thereunder. (3) In determining the application of consumer protection laws to particular transactions, we have said that ... we must look to the substance of the transaction and not allow mere form to dictate the result. ( Glaire v. La Lanne-Paris Health Spa, Inc., supra, 12 Cal.3d 915, 925; see Thomas v. Wright (1971) 21 Cal. App.3d 921, 924-925 [98 Cal. Rptr. 874] [lease held to be conditional sales contract].) Plaintiffs herein have alleged sufficient facts indicating that, despite the form of the transaction as a loan of money from Bank to plaintiffs, the substance thereof was an installment sale of automobile insurance. Defendant Bank, however, observes that the business of insurance premium financing is independently regulated by the provisions of the Insurance Premium Financing Act (Fin. Code, § 18900 et seq.). Bank suggests that the Legislature would not have intended both this act and the Unruh Act to control such transactions. Yet the provisions of the Insurance Premium Financing Act apply only to those companies organized and qualified to act as premium finance agencies. (See Fin. Code, §§ 18003.1, 18904, 18930.) Banks and other traditional lending institutions are not governed by these provisions. (See Stats. 1965, ch. 1629, § 8, p. 3725, reported as an historical note in West's Fin. Code Ann., § 18930, p. 486.) Accordingly, the acceptance of Bank's contention in this regard would render the financing aspects of the present transaction unregulated by either act. (2b) For all of the foregoing reasons, we conclude that the allegations of plaintiffs' complaint, taken together with those inferences reasonably drawn therefrom, state a cause of action against Bank under the Unruh Act, permitting plaintiffs to go to trial.