The Superior Court of New Jersey, Appellate Division in Jennifer Woo-Padva v. Midland Funding, LLC, recently affirmed the dismissal of consumer fraud claims brought against a debt collector pursuant to the New Jersey Consumer Finance Licensing Act (CFLA), holding that a debt purchaser is not liable under the New Jersey Consumer Fraud Act (NJCFA) for failing to obtain a state license under the CFLA.

After defaulting on two credit card accounts with HSBC Bank, Plaintiff’s accounts were charged off and sold to third-party debt purchaser Midland Funding, LLC, which then placed the accounts with a debt collection law firm for servicing. Plaintiff then paid off one of the accounts in full. As to the other account, however, the law firm commenced legal action against Plaintiff and the parties entered into a consent judgment pursuant to which Plaintiff made payments on the account, with her last payment made in 2013.

On May 24, 2017, Plaintiff filed a proposed class-action complaint alleging, among other things, that Midland 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 CFLA. Importantly, Midland did not obtain a consumer lending license in New Jersey before January 6, 2015.

Plaintiff based her complaint on: (1) allegations that “dunning letters” Midland sent her through its agents caused her to make payments on the debt, and (2) Midland’s purchase of an account on which Plaintiff had defaulted. Plaintiff also noted that Midland filed a lawsuit against Plaintiff based on her debt, causing her to make payments, which ultimately resulted in Plaintiff entering into a consent judgment. Plaintiff sought a declaratory judgment declaring that her consent judgment was “void” and that she was owed damages under the NJCFA based on Midland’s collection of her accounts without having a CFLA license.

The trial court previously found that res judicata and the entire controversy doctrine barred Plaintiff’s claims related to the consent judgment. However, given that the other account was settled without a judgment, the court allowed her claims as to the other to proceed forward. The trial court granted summary judgment for Midland on all of Plaintiff’s remaining claims because, as a debt buyer, the court found that Midland was not a “consumer lender” and thus did not require a CFLA license. The trial court also held that Plaintiff’s claims were not covered by the NJCFA because Midland did not offer to sell the Plaintiff any services or merchandise and because she suffered no “ascertainable loss.”

The New Jersey Appellate Division affirmed the CFLA dismissal but on other grounds. First, the Appellate Division held that the CFLA does not provide for a private right of action, and Plaintiff was precluded from using the Uniform Declaratory Judgments Act to circumvent that lack of a private right of action. Instead, the type of violations alleged under the CFLA are enforceable only by the New Jersey Commissioner of Banking and Insurance.

Second, to prevail on a NJCFA claim, the Appellate Division noted that a plaintiff must establish unlawful conduct, an ascertainable loss, and causal relationship between the two. Here, because Plaintiff did not demonstrate that Midland had engaged in unlawful conduct under the NJCFA or that she suffered an ascertainable loss, summary judgment was affirmed.

The Appellate Division explained that a plaintiff may establish the unlawful conduct element of a NJCFA claim by either an affirmative act, which requires no showing of intent, or by an omission, which requires a showing that “the defendant acted with knowledge, and intent is an essential element of the fraud.” Plaintiff alleged that Midland had engaged in unlawful conduct by misrepresenting “that it had the legal right to collect on the account when it lacked the proper license to do so.” The Appellate Division held that because Plaintiff did not base her NJCFA claim on a misrepresentation made to induce her to obtaining credit, but instead alleged a misrepresentation made after she had obtained her credit card account and after she had incurred the debt at issue, Plaintiff was not “lured into a purchase” by an action or misrepresentation by Midland. Since the alleged misrepresentation was not in connection with the origination of the debt, it could not constitute a violation of the NJCFA.

Finally, the Appellate Division found that Plaintiff had not sustained an “ascertainable loss,” which is required to establish a claim under the NJCFA. “An ascertainable loss under the [NJCFA] is one that is quantifiable or measurable, not hypothetical or illusory.” Here, Plaintiff paid a debt she admittedly owed and her payment of that valid debt to the debt purchaser did not constitute an ascertainable loss.