ANNAPOLIS – A Baltimore company must pay more than $560,000 in penalties after charging customers 730 percent annual interest to lease back their own goods, according to a ruling released Tuesday by the Court of Special Appeals.
The court agreed with the Attorney General’s Consumer Protection Division that B&S Marketing Enterprises provided loans, and not “sale-leasebacks,” when it loaned money to customers, who brought in their used electronic equipment as collateral.
The company “bought” the equipment, then leased it back to the owner at what the Attorney General charged was an exorbitant interest rate until the customer repurchased it. The company also failed to fully disclose that the customer could simply surrender the product instead of buying it back.
“We are very pleased with the court’s decision. We have been working on it for a number of years,” said Attorney General Joseph Curran Jr, adding the operation took in 11,000 Maryland customers. “It was an outrageous operation. It was a pure sham.”
The court ordered the company to pay the state penalties and return all interest or “lease payments” made by the 11,000 victims.
Lawrence Fletcher-Hill, attorney for B&S Marketing Enterprises, said his clients were disappointed and have not decided whether they will appeal.
Between 1994 and 1996, B&S Marketing Enterprises entered into 56,208 agreements where the company paid up to $100 each to buy up to two pieces of electronic equipment or appliances from customers. Clients then were charged $30 per item every 15 days to lease the equipment back from the company. At the end of each cycle, the customer could either pay the total amount owed or lease the equipment for another 30 days.
It wasn’t until March 1996 that the company disclosed the option of returning the merchandise and only paying the rental payment. However, repeat customers, about 80 percent of the company’s business, were never told of this option and only 84 items were ever returned.
In addition, the company paid a flat rate of $100 per item, no matter what the item’s value, and charged $30 for the rental, regardless of the item’s worth.
The Consumer Protection Division found, “the disinterest in obtaining more information about the items ‘purchased’ illustrates the actual role played by the items of personal property listed in the transactional documents and demonstrates that the ‘purchase’ was in fact a pretense.”
Since the property was of little or no value to B&S, the Consumer Protection Division argued the money was a loan and the lease payment was interest.
B&S Marketing Enterprises argued successfully before an administrative law judge that the company did not violate the Maryland Consumer Loan Law because it provided cash to consumers under a lease agreement. However, the judge did agree the company engaged in “unfair and deceptive trade practices in violation of the Consumer Protection Act.”
An appeal to the Baltimore Circuit Court found in favor of the Consumer Protection Division.
The General Assembly has looked at the issue of so-called “payday loans” in the past and Sen. Ida Ruben, D-Montgomery, said they may re-examine the issue again if the case law is not sufficient.
“It is wonderful that they (the Consumer Protection Division) won,” she said. I would be anxious to clarify the law if the Consumer Protection Division needed it. . . . People are being duped.”