Understanding New Jersey Debt Collection Laws

Overview of New Jersey Debt Collection Laws

With the diverse and vibrant economy within the State of New Jersey, it is very important that credit sales, as well as debt collection are done in compliance with both state and federal laws. It is important for both creditor to know their legal rights when it comes to collecting on a debt and it is equally important for those who fall behind on their debt and become subject to collection activity know their rights under the applicable laws. In New Jersey, the "Debt Collection Act," N.J.S.A. 45:18-1, et seq., governs the actions of debt collectors which make a "debt collector" any person engaged in the business of collecting debt. Since there is no distinction between a "debt collector" and a "secured creditor" when engaging in debt collection, it is incumbent upon all persons seeking to collect on a debt to first consider whether there are violations. A creditor (or a "debtor" in this case) , may collect on your debt by going through the Court system. It is normally done by filing a Municipal Court Action which is your complaint, service of the complaint, a defense (if any) and then a return date in Court. Through the Municipal Court, a creditor can obtain a Judgment which will allow them to take possession over the subject personal property, etc. Depending on the debt, you may be able to take the creditor to Court if it violates a New Jersey Law or a federal statute. Within the process of collecting a debt, there are many pitfalls and a creditor must walk a very fine line in order to stay within the necessary rules and regulations, particularly those dictated by the New Jersey Department of Banking and Insurance, the New Jersey Attorney General and the Federal Trade Commission.

Key Regulations for Debt Collectors

Debt collectors and businesses that utilize third-party debt collection practices in New Jersey must navigate several regulatory frameworks. Among these, the most critical is the New Jersey Collection Agency Act (the "Collection Act"). The Collection Act is enforced by the New Jersey Division of Consumer Affairs (the "Division") through its Attorney General. The Collection Act is comprised of four primary provisions: 1) licensing; 2) prohibited conduct; 3) penalties; and 4) additional regulations for entities that solicit clients for collection services. This section will discuss the first three provisions.
Licensing Requirements: The Collection Act requires all debt collectors who conduct business in New Jersey to obtain a Collection Agency License issued by the Division. The Collection Act defines a "collection agency" as any entity "engaged in the business of collection, solicitation, or enforcement of claims, debts, accounts or other amounts which are, or are alleged to be, due or owing to another." A "collection agency" also includes an "assignee" or "sub-assignee" of a creditor to whom a debt is owed.
Each collection agency must have a designated "qualifying officer" who must submit a license application "on a form approved by the [D]ivision, accompanied by the application fee." Any fees, license amounts, and penalties set forth by the Division go through the State for distribution to the appropriate state agencies. Within this context, applicants must also submit to criminal background checks, undergo fingerprinting, and submit any additional information required by the Division. It is essential for applicants to ensure that their applications satisfy any and all statutory requirements, as failure to do so may result in a number of negative consequences, including license revocation or disciplinary action such as fines, reprimands, probationary periods, or suspensions.
Prohibited Conduct: The Collection Act prohibits a variety of conduct, and the Division imposes civil penalties of up to $50,000 for violations of these rules. In addition to the penalties, a violator may be required to pay restitution to any person or entity who was harmed by its actions. The Division also has the right to initiate injunctive relief and other equitable remedies to prevent violations of the Collection Act.
In addition to the penalties described above, violation of the Collection Act provides a cause of action for private citizens. Plaintiffs may seek injunctive relief, restitution, and damages. Under New Jersey law, noneconomic damages "may be recovered for harm arising from a violation." As a caveat, the language of the statute imposes a limitation on fraudulent or reckless conduct: "there shall be no recovery for noneconomic loss except on proof of an intentional violation, a specifically named violation, or a violation caused by reckless violation; the party in violation shall have the burden of proving that the violation was intentional, a specifically named violation, or caused by reckless violation."
"Specifically named violations" refers to those listed in the regulations set forth by the Division. Currently, the Division has not published "specifically named violations" corresponding to the Collection Act. This would presumably include violations of the licensing requirement. Reckless violations, on the other hand, would include those for which intent is not an element of the violation.
The Division has investigated a number of collection agencies for violations of the Collection Act, usually in response to complaints the Division itself has received. For instance, in a case last year, the Division investigated a collection company for alleged licensing violations by citizens who forwarded the company’s communications to the Division. In another case, the collection agency allegedly failed to respond to the company’s several letters requesting satisfactory documentation of its license. Both companies received reprimands for their alleged violations. In response to these actions, one of the companies filed a challenge to the Division’s police powers claiming that it violated its First, Fourth, Fifth and Fourteenth Amendment rights, which were ultimately denied by the court.
Additional Regulations: Although not all collection companies are required to register under the Collection Act, the statute will apply to organizations that solicit clients for collection services. Specifically, any person from New Jersey soliciting clients for collection agencies must register with the Division and adhere to Division regulations, including any fees.

Debtor Rights and Protections

The New Jersey Fair Debt Collection Practices Act provides debtors with protections and rights when a debt collector attempts to contact them regarding delinquent accounts or outstanding bills. Collection agencies and debt collectors, as well as third parties collecting on behalf of companies, are restricted by law when attempting to contact a debtor. Debt collectors may not contact a person repeatedly, nor may they use foul language, threaten violence or engage in harassment when speaking or working with a debtor. The law restricts debt collectors to one phone call in each 24-hour period. Exceptions to this rule can occur only if the debtor is contacted at their request, if the debtor has given permission to be contacted via a certain method (e.g., email or letter), or if the debt collector receives consent from the debtor through either written communication or by speaking in person regarding the debt. Debt collectors may not disclose information about an outstanding debt, its balance, payment options or work with any creditors without the consent of the debtor. Individuals cannot be called at their place of employment, contacted over social media or by other means unless the debtor consents to this type of communication, or they have provided their consent through prior communications. The debtor may revoke their consent at any time, and the debt collector is bound to comply with their wishes. A creditor must provide proof of the outstanding balance, proof of the debt and a disclosure of all fees and interest rates associated with the debt when requested. Unless the debtor has received this information from the creditor directly, the creditor must provide this information within five days of receipt of the request. Several other restrictions apply to debt collectors, including: Debtors have the right to sue debt collection agencies that violate state and Federal regulations.

Lawsuit and Statute of Limitations

As explained above, creditors cannot simply take what’s not theirs. They must comply with statutes of limitations to pursue a debt, or face restrictions on their ability to collect and even the potential of liable for damages and attorney fees. In New Jersey, the statute of limitations is six years for all written contracts and contracts with an implied promise. The statute of limitations also applies to open-ended revolving accounts, such as credit cards and personal lines of credit. Any debt obligation with specified payment terms are subject to a six-year statute of limitations. For breach of written contract, the statute of limitations runs from the date the agreement was breached. Once a creditor successfully obtains a judgment or other remedy such as foreclosure, the statute of limitations is no longer relevant. If a creditor can obtain that you are liable and pursue a judgment, their collection efforts can continue indefinitely until the debt is paid. However, if you begin to make monthly payments again, the statute of limitations can be interrupted allowing the creditor to pursue a new six-year period for the statute of limitations to run. Also, the statute of limitations prolongs the time period for creditors to collect on debts when they are aware of your whereabouts. If a creditor cannot locate a debtor, the statute of limitations for six years does not apply. An example of where this could occur is when a creditor sues the debtor for a deficiency arising from a home mortgage and the debtor is not served with the summons in the lawsuit. In that case, the statute of limitations would not begin to run until the debtor is served with process. If a creditor believes that a debtor is lying about their ability to pay, or their whereabouts, they may use legal actions to find out where the debtor might work or live. A creditor may procure a judgment and then garnish the debtor’s wages. Or, creditors may issue subpoenas to learn the debtor’s employer or bank. Creditors may even pursue garnishment of bank accounts by obtaining a judgment and levying the sheriff.

Disputing and Settling Debt

When dealing with third party debt collectors, you want to dispute a debt in writing. This will create a record that you disputed the debt. Send in your dispute certified mail, which will allow you to demonstrate the collector received the dispute. Under the Fair Debt Collection Practices Act, you can request a written verification of the debt, or a copy of the agreement under which the debt arose. At this point, if there is some doubt about the validity of the dispute, the collector may provide you with the needed verification. The collector is then required to validate the debt.
If you do not get the verification and the debt collector continues attempting to collect the debt, the debt collector may have violated various federal and state debt collection laws. At this point, it would be wise to seek legal counsel.
If you don’t dispute the validity of the debt, and the collector verifies the debt, or if the debt collector does not respond to your dispute, you may decide to incur compromise and settlement negotiations . You could save substantial amounts in this process. The key is to resolve the matter before judgment. Once recorded as a judgment, the amount owed becomes a matter of public record, and the collector has substantial collection tools at its disposal to enforce the judgment. Debt collectors use many methods to try to settle debts.
The basic approach is to offer a lump sum up front, and then have the remaining amount potentially forgiven (subject to miscellaneous conditions). You can use various tactics in negotiating settlements. Delay tactics can be used if your financial picture is not looking good, in order to stretch out the process. Or you may give the impression that you are close to bankruptcy and/or litigation. In some cases, you can trump up some legal theories for challenging the debt. All these tactics can result in a more favorable settlement.

Penalties for Collectors

Under the Fair Debt Collection Practices Act (FDCPA), debt collectors can be fined and/or face restrictions on their collection practices for violations. The FDCPA also gives debtors the right to sue collectors who violate the Act and recover statutory damages, additional damages, and attorney fees. New Jersey collectors are permitted to join the New Jersey debt collection practices rules into a claim under the FDCPA. Shifty practices by collectors can also expose them to tort liability under a number of other theories. Considering the consequences for debt collectors who break the law, these collectors should think twice before using questionable methods to collect debts. Further, they should have a robust compliance program or audit practices that will help them detect and eliminate unwanted violations and risk.

Getting Legal Help

Before making any decision, seeking legal assistance may accomplish the same goal without the fear and anxiety of being sued. Consultation with an attorney is often helpful in negotiating a settlement with creditors, or even simply to better understand the legal process. There are many ways to obtain qualified legal assistance. Most function with a sliding scale fee based on ability to pay. They typically require a fee agreement to be signed and request retainer payment up front. They may require additional payments as representation progresses, or they may complete the work for the initial agreed upon figure . Individuals can contact a non-profit or by calling the New Jersey Bar Association (1-800-792-9743), visit their network to find a low-cost or no-cost referral services, or utilize a phone service. Many non-profit legal services can not offer direct assistance, but will review the situation and assist in determining if there is a need for representation. A free service directly from the New Jersey Judiciary is available to residents of the state. Residents may call toll-free 1-888-LAW-4YOU to receive information about their rights and whether they have a legal problem that needs assessment and attention. The Judiciary never charges a fee for information and advice; all calls are absolutely confidential.