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Editor: Myanna Dellinger
University of South Dakota School of Law

Thursday, November 3, 2005

If it Walks Like a Loan, and Talks Like a Loan, it is Not an Instant Cash Rebate

130pxnorth_carolina_state_flag An appellate court in North Carolina recently held that an "internet service" company’s contracts violated usury laws. The company’s contracts offered customers an instant "cash rebate" and the opportunity to use the internet at scheduled times at the company’s offices. In exchange, the customers committed to make bi-weekly payments for one year. The total amount of these payments (between $40-$100 a month) was about five times the value of the "rebates," and the court held that the "rebates" were usurious loans rather than legitimate service contracts.

The company argued that it was an internet service provider, and the contracts for services were, therefore, legitimate. The court did not buy this argument – it held that the company’s sale of internet services was a "guise" for a small loan business. The court was particularly swayed by the facts that (1) many customers averred that they had signed up for the internet services solely to get the instant cash; (2) the internet services, which were only available during limited hours at the company’s office, had "scant monetary value" and were offered by other providers more conveniently and for much less money; and (3) the so-called "rebates" did not fall within the Black’s Law Dictionary definition of "cash rebates," which contemplates the return of a part of a payment as a discount or reduction.

State ex rel. Cooper v. NCCS Loans, Inc., 2005 N.C. App. LEXIS 2392 (Nov. 1, 2005).

[Meredith R. Miller]

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