8 January 2024 / Scott J. Best

New Jersey Appellate Court Confirms No Private Right of Action for Failing to Obtain State License

The New Jersey Appellate Division recently issued a decision in the matter of Woo-Padva v. Midland Funding, LLC A-1996-21 (BER L-3625-17), finding that there is not a private right to action under the New Jersey Consumer Finance Licensing Act (NJCFLA) for failure of a business to register under the NJCFLA. The NJCFLA requires companies engaged in consumer lending to obtain a license in New Jersey to operate a consumer lending business. The court also found that the New Jersey Consumer Fraud Act (CFA) did not, in this instance, apply to the debt purchaser.  

In Woo-Padva, the consumer defaulted on her payment obligations to the original creditor, who then sold her account to Midland Funding. She then resolved the account with Midland and its attorneys through a payment arrangement, completing the settlement in 2013. In 2017, nearly seven years after the account was sold to Midland, Woo-Padva filed a class, using the Uniform Declaratory Judgment Act alleging that Midland “filed numerous lawsuits… to collect the consumer debts allegedly owed by New Jersey Consumers… when it was not properly licensed” under the NJCFLA. Woo-Padva also alleged violations of the New Jersey CFA and unjust enrichment.

The trial court granted Midland’s summary judgment motion in all respects finding that:
  1. Midland was not a consumer lender and therefore did not require a license under the NJCFLA;
  2. Woo-Padva’s claims under the NJ Fraud act were without merit because Midland did not sell Woo-Padva and services or merchandise; and
  3. Woo-Padva had not suffered an ascertainable loss pursuant to the CFA.

Woo-Padva appealed the decision to the Appellate Division of the New Jersey Superior Court.

The Appellate Division upheld the order for summary judgment, but on a different basis. The Appellate Division found that there is not a private right of action under the NJCFLA and that a private actor cannot circumvent the private right to action by using the Uniform Declaratory Judgment Act. This decision follows numerous prior decisions in New Jersey federal and state courts who similarly found that only the Commissioner of Banking and Insurance has the authority to enforce the requirements of the NJCFLA and that cannot be gotten around by using the Uniform Declaratory Judgments Act as the basis for a cause of action.    

Of equal importance to businesses that purchase defaulted debt, is that the Appellate Division upheld the dismissal of the CFA claims. The court found the conduct of attempting to collect a debt when Midland allegedly lacked the required license to do so, does not give rise to a claim under the CFA because the “misrepresentation” alleged by Woo-Padva was not made to induce her into obtaining credit. Under the CFA, the offending conduct must be material to the transaction, made to induce the consumer to obtain credit, or make a purchase. Because the alleged conduct of Midland did not lure her into a purchase or extension of credit, the CFA was not violated.

Further, under the CFA, the consumer must show that there is an ascertainable loss, and it cannot be “hypothetical or illusory.” The court upheld the trial court's determination that Woo-Padva failed to prove an ascertainable loss by attempting to argue that at an unknown future date, it may be possible for HSBC or another purchaser could pursue her for this debt. That speculative argument was too hypothetical and misleading to find an ascertainable loss.

While not binding authority, it is persuasive and should help to clarify the law as there have been conflicting decisions regarding these issues at the state and federal level. This decision is a welcome relief for purchasers of defaulted debt, especially with regard to CFA claims.
Our team is constantly monitoring this case as it develops as there are several other similar cases pending in New Jersey state and federal courts. If you have any questions, please connect with attorney Scott Best at any time.

These blogs are not a solicitation for business and it are not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.

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