In a case that was defended in part by the team at J. Robbin Law, the New Jersey Supreme Court has ruled that the state’s Consumer Finance Licensing Act does not give borrowers a private right of action to void their loan contracts, affirming the dismissal of a class-action lawsuit against a group of debt buyers that allegedly purchased the plaintiff’s credit card debt without the required license.
The background: After the plaintiff defaulted on a credit card balance of $618.91, the account was closed and the debt was sold and reassigned several times.
- The debt passed from the original lender through a chain of five related entities, none of which was licensed in New Jersey as a consumer lender or sales finance company at the time of the transactions.
- The last debt buyer in the chain sued to collect, and after the plaintiff failed to answer the complaint, a default judgment of $703.29 was entered against him.
- Years later, the plaintiff filed a class-action lawsuit on behalf of himself and other New Jersey consumers whose debts had been assigned to the debt buyer, alleging the purchases were void as a matter of law because the defendants were unlicensed, and seeking a declaratory judgment voiding his contract along with an injunction against future collection efforts.
- The trial court dismissed the complaint, reasoning that only the state’s Commissioner of Banking and Insurance has authority to pursue violations of the statute, and the appellate court affirmed, following its own earlier ruling in a similar case.
- The defendants “emphatically” contested the premise that debt purchasers need a license at all, but because the issue was never raised, no court reached it.
The ruling: The New Jersey Supreme Court unanimously affirmed, holding that the statute contains no implied private right of action for a borrower to void a loan contract.
- Justice John Jay Hoffman of the Supreme Court of New Jersey, who wrote that courts apply a three-factor test in these situations, noted the plaintiff was clearly a member of the class the statute was meant to protect, but there was no evidence the Legislature intended to create a private right of action, nor would one be consistent with the legislative scheme.
- Predecessor licensing statutes dating back to 1914 expressly allowed borrowers to recover sums paid on a violative loan, and the ability to void a contract was only ever exercised as part of that express recovery right, which the Legislature removed. That removal, the justice wrote, “counsels firmly against” finding an implied right.
- The voiding provision was historically asserted only as an affirmative defense to a collection suit, never as an affirmative claim.
- The provision also sits inside a penal scheme that makes licensing violations a fourth-degree crime, and enforcement of penal laws is left to the state, not private plaintiffs.
- Voiding a contract means a lender simply cannot collect on it going forward; recovering payments already made is a separate remedy that leaves the lender “shorn of all.”
