NJ Justices Debate Longstanding Debt Collection Defense

New Jersey’s Supreme Court is weighing whether consumers can still use a long‑standing statutory defense to wipe out or recover money on certain consumer loans when the lender or debt buyer was not properly licensed, or whether recent legislative changes quietly curtailed that private enforcement tool. The outcome will significantly affect both class‑action exposure for debt collectors and the leverage borrowers have in challenging collection suits on high‑cost or improperly originated loans in New Jersey.​

What the case is about

• The dispute centers on New Jersey’s Consumer Finance Licensing Act (and related small‑loan statutes) and whether borrowers may keep or recover loan principal or damages when a lender or debt buyer violated licensing rules.​

• Consumer advocates argue that for over a century New Jersey law has treated unlicensed loans as void and given borrowers an affirmative remedy—now including treble‑damage language—when lenders charge illegal interest or operate without a license.​

The “longstanding defense”

• Since at least 1914, New Jersey’s small‑loan statutes said consumers “can recover” from lenders that violated rate or licensing provisions, and courts treated those loans as void or voidable at the borrower’s option.​

• In 1997, the New Jersey Supreme Court’s Lemelledo decision recognized private enforcement of these remedial provisions, reinforcing the understanding that borrowers themselves could invoke forfeiture and damages against unlawful lenders and collectors.​

Why the justices are debating it now

• In later statutory revisions, the Legislature changed phrasing away from “can recover” toward language that focuses on what the lender “shall forfeit,” raising the question whether lawmakers meant to eliminate or narrow private lawsuits and leave enforcement to regulators.​

• Several justices expressed concern during argument about reading too much into this wording change and about whether it is plausible the Legislature intended to silently erase a century of private remedies without clearly saying so.​

What’s at stake for borrowers and collectors

• If the court agrees with the borrower and amici, consumers could continue bringing class actions seeking to void unlicensed loans, keep principal already paid, and claim multiple damages based on unlawful charges when debt buyers sue or collect.​

• If the court sides with the defense view, unlicensed lending and related collection activity would still be unlawful, but borrowers might be limited to regulatory complaints and narrower claims, significantly reducing litigation risk for debt collectors in New Jersey.​

Practical takeaway right now

• Until the New Jersey Supreme Court issues its opinion, there is uncertainty: lower courts and litigants must navigate competing readings of the statutes and prior case law on voidness and private rights of action.​

• Anyone facing a collection lawsuit in New Jersey involving high‑cost credit, subprime credit cards, or unfamiliar debt buyers should speak with a consumer‑law attorney or legal‑aid group to evaluate potential licensing‑based defenses and deadlines while this issue is pending.​