Recently, the New Jersey appellate division held that a debt purchaser is not liable under the New Jersey Consumer Fraud Act (NJ Fraud Act) for failing to obtain a license under the New Jersey Consumer Finance Licensing Act (NJ Licensing Act). Although the decision is unpublished, it is still a welcome relief for purchasers of defaulted debt.
The lawsuit in Woo-Padva v. Midland Funding, LLC, arose out of the plaintiff opening a credit card account. The plaintiff later defaulted on her payment obligations and the account was “charged off.” In 2010, the defendant purchased the account and placed it with a law firm for collection. After receiving letters from the law firm, the plaintiff set up a payment plan, which she completed in 2013. In 2017, the plaintiff filed a class action lawsuit alleging the defendant was a “collection agency” that had “filed numerous lawsuits … to collect the consumer debts allegedly owed by New Jersey consumers on defaulted credit accounts at a time when [it] was not properly licensed” under the NJ Licensing Act.
The trial court granted summary judgment to the defendant on all claims finding that because the defendant was not a consumer lender it was not required to obtain the license at issue. The trial court also held that the plaintiff’s NJ Fraud Act claims failed because the defendant did not offer to sell the plaintiff any services or merchandise and the plaintiff had not suffered the requisite “ascertainable loss.”
The appellate division affirmed the dismissal, but for different reasons. The appellate division held that the NJ Licensing Act does not provide for a private right of action and violations are only enforceable by the Commissioner of Banking and Insurance.
Regarding the NJ Fraud Act claims, the appellate division found there were no allegations that the defendant sold credit or offered anything to the plaintiff. Instead, the offending conduct was misrepresenting “that it had the legal right to collect on the account when it lacked the proper license to do so.” However, because the conduct was not made in connection with the origination of the debt, the appellate division held that it could not constitute a violation of the NJ Fraud Act.
Additionally, the appellate division found that the plaintiff had not suffered an ascertainable loss. Specifically, the appellate division held that the speculation that the original creditor, which charged off and sold the account, could someday seek payment from the plaintiff is too hypothetical and illusory to support a finding of ascertainable loss.
Debt purchasers faced with similar allegations will welcome the decision as it seeks to clarify whether certain licenses are required to purchase debt. While the appellate division’s decision is not binding, it is persuasive and should help clarify the law at the trial court level where there have been mixed decisions on similar fact patters.