On July 8, the New Jersey Supreme Court issued a unanimous opinion in Diana, delivering a decisive and long-awaited victory for debt buyers operating in New Jersey. The court’s ruling — affirming the dismissal of a putative class action brought by a borrower seeking to void his credit card debt — definitively closes the door on a theory of liability that has dogged the debt-buying industry in New Jersey for years.

Background: A Decade of Uncertainty

The litigation history leading to Diana is itself a story of persistent pursuit against the debt-buying industry. The plaintiff defaulted on a modest credit card balance of $618.91. After the debt changed hands through a series of assignments, the plaintiff filed a putative class action in 2023 alleging that, among others, the debt buyer violated the New Jersey Consumer Finance Licensing Act (CFLA) by purchasing and holding consumer debt without first obtaining the required consumer lender or sales finance company licenses. Critically, the plaintiff sought to weaponize N.J.S.A. 17:11C-33(b) — the CFLA’s criminal enforcement provision — as the basis for a private right of action to void the debt outright and enjoin further collection, on behalf of himself and an entire class of New Jersey borrowers.

The potential exposure for the debt-buying industry was enormous. If the plaintiff’s theory had prevailed, any debt buyer that had not obtained a New Jersey consumer lender license before taking assignment of consumer debt could have faced class-wide actions seeking to void those debt portfolios in their entirety.

The Court’s Ruling: Unanimous and Unambiguous

The New Jersey Supreme Court, in an opinion authored by Justice Hoffman and joined by all six of his colleagues — Chief Justice Rabner and Justices Patterson, Pierre-Louis, Wainer Apter, Fasciale, and Noriega — held without reservation that the CFLA does not contain an implied private right of action for a borrower to void a loan contract.

Applying the well-established three-factor test from Cort v. Ash, 422 U.S. 66 (1975), as adopted by New Jersey courts, the court assumed in the plaintiff’s favor that he was a member of the class for whose benefit the CFLA was enacted, but found that he failed to satisfy both the second and third Cort factors. That analysis rests on two independent and reinforcing pillars.

First, legislative history forecloses a private right of action. The CFLA’s predecessor statutes — the Small Loan Law of 1914, the Small Loan Act of 1932, and the Consumer Loan Act of 1989 — each expressly granted borrowers the right to “recover from the lender any or all sums paid” in connection with a violative loan. When the legislature enacted the Licensed Lenders Act in 1997 and the CFLA in 2010, it deliberately removed that express private recovery provision. The court was clear: the legislature’s pointed omission of an affirmative private right to recover “counsels firmly against finding legislative intent to confer an implied private right of action to void a loan contract.” What remained in subsection 33(b) was solely the criminal voiding provision. Historically, New Jersey courts only ever permitted borrowers to invoke the voiding remedy as part of the now-removed express recovery right, never as a standalone private cause of action. As the court noted, the criminal voiding provision’s historical use in civil litigation was solely as an affirmative defense. A shield, not a sword. And there is no basis to infer a private right of action from that limited use.

Second, the penal nature of subsection 33(b) confirms the legislature’s intent. The voiding provision in subsection 33(b) is embedded within an unambiguously penal scheme — one that first declares violations to be crimes of the fourth degree before providing that contracts tainted by such crimes are void. New Jersey courts have long declined to allow private plaintiffs to sue for injunctions to enforce state penal laws, leaving such enforcement to the agencies and prosecutors charged with those responsibilities. In the court’s eyes, the legislature knows how to expressly authorize concurrent civil actions alongside criminal penalties. It has done so elsewhere in the New Jersey Code, so its silence here is telling. Without such a clarifying legislative statement, the court declined to infer a private right of action from a criminal provision.

Why Diana Matters for Debt Buyers

The Diana decision is not merely a win in a single case. It is the culmination of years of litigation across New Jersey’s trial and appellate courts and finally — and without any remaining doubt — resolves the question of whether the CFLA provides a private right of action for borrowers seeking to void their debt obligations. The ruling builds upon countless trial and appellate court rulings, which had reached the same conclusion. Diana now elevates these holdings to the highest level of New Jersey jurisprudence. Because the decision comes from the New Jersey Supreme Court, there is no further appellate avenue. The question is settled — permanently and decisively.

For the debt-buying industry, the practical implications are significant:

• Foreclosure of both individual and class liability under the CFLA. Putative class plaintiffs — and individuals seeking particular relief — can no longer invoke subsection 33(b) as the basis for a private right of action to void debt portfolios on a classwide basis. The theory that sustained years of litigation against debt buyers in New Jersey is dead.
• The affirmative defense survives; the affirmative claim does not. The court’s reasoning makes clear that borrowers may still assert unlicensed-lender conduct as an affirmative defense when a debt buyer sues to collect, but they cannot weaponize the CFLA to initiate affirmative litigation to void and extinguish their obligations. However, other attacks on a borrower’s use of the CFLA still exist, such as the argument that the simple exchange between debt buyers does not constitute a qualifying “act in the making or collection” of the debt under subsection 33(b) and the CFLA’s licensing requirements do not apply to the sale of debts that occur in other states.
• Licensing exposure remains a regulatory, not a private litigation, risk. The Commissioner of Banking and Insurance retains authority to pursue CFLA violations. Debt buyers should continue to monitor licensing requirements and any regulatory developments closely, but Diana eliminates the specter of mass private litigation under the CFLA.
• The court left open other CFLA provisions. In a footnote, the court noted that because the private-right-of-action issue was dispositive, it did not reach whether other provisions of the CFLA permit private enforcement. Debt buyers should remain attentive to arguments that may arise under other CFLA provisions.

Looking Ahead

While Diana resolves the private right of action question under the CFLA with finality, debt buyers operating in New Jersey and across the country should remain vigilant. Consumer advocates will undoubtedly explore alternative theories of liability, including claims under the New Jersey Consumer Fraud Act, the Fair Debt Collection Practices Act, and state licensing regimes in other jurisdictions. While debt buyers continue to maintain robust defenses to many such claims, they should also continue to monitor the progression of alternative arguments. In the meantime, Diana’s ruling provides meaningful clarity and breathing room for the industry.

Troutman Pepper Locke’s Consumer Financial Services team has been at the forefront of defending debt buyers against CFLA-based claims and will continue to monitor legislative and regulatory developments in this space. If you have questions about how Diana affects your operations or portfolio, please contact any of the authors of this post.