The Center, joined by Bet Tzedek Legal Services and Public Counsel, filed an amicus brief in People v. Curacao inthe California Second District Court of Appeal in support of the California Attorney General’s case against the Southern California-based retailer Curacao for its use of deceptive junk fees in its retail installment sales contracts.
Businesses have long used retail installment sales to target low-income individuals and immigrants by encouraging the buyer to purchase goods on credit and then having them repay the loan through fixed, regular payments. But as the Center’s brief notes, these installment payment plans often give way to unscrupulous lending practices – practices that have persisted for over a century. Knowing low-income and immigrant consumers often lack access to traditional bank loans, the installment sales industry takes advantage of these groups by tricking consumers with hidden fees and high interest rates. This leaves the total all-in cost hidden from consumers and much higher than if they had paid for the item in full up front.
In order to stop installment lenders’ exploitation of and fraud against low-income individuals, the California Legislature enacted the Unruh Retail Installment Sales Act in 1959. Designed to counter abusive lending practices, the Act prohibits predatory garnishment, repossession, and collection tactics as well as mandated clear and careful disclosures of all terms.
The department chain store Curacao presents a modern example of these abusive practices in the form of predatory installment sales. Most of Curacao’s customers purchase its goods – primarily furniture and electronics – through in-store credit or on installments. Curacao touts its primary target market as Latin American immigrants who lack access to traditional credit, capturing a group that is reliant on Curacao’s products and vulnerable to its installment sales practices. Curacao capitalizes on the loyalty and reliance of its immigrant consumer base, charging significantly higher prices once the costs of credit are calculated. About two decades ago, Curacao introduced an “optional” credit protection product called Adir Global Protection (AGP) that allows buyers to suspend or defer payments on their store credit in the case of certain life events without incurring late fees and harming their credit score. The California Attorney General brought a lawsuit against Curacao challenging the AGP practice that ultimately went to trial.
The Center’s brief argues that, in reality, AGP is a hidden “junk fee” that Curacao uses to extract significant charges from consumers by billing them regardless of whether payments are suspended or deferred.
The brief explains that Curacao’s AGP fee violates the Unruh Act by replicating the very exploitative lending practices that it was created to prevent. The Unruh Act requires the complete disclosure of the total cost of goods and services to the consumer, forbidding the addition of credit protection fees like AGP. The Act requires that every “finance charge” be disclosed to consumers and prohibits any other fee “whatsoever” from being included in the charge. Given that AGP is not a finance charge, as it does not compensate Curacao for the cost of forming the installment product or of extending credit, it is an unlawful add-on fee.