Banking and Finance Law Daily Wrap Up, DEBT COLLECTION—N.J. Sup. Ct.: State licensing law did not provide private right to void consumer debt, (Jul 10, 2026)

By Justin Marcus Smith, J.D.

The consumer may have left a good affirmative defense about the licensing of debt collectors on the table when he permitted entry of default judgment six years ago.

Guided by the history and plain language of the New Jersey Consumer Finance Licensing Act (CFLA), the Supreme Court of New Jersey held that a consumer, who had already been a judgment-debtor for over a year, failed to satisfy two of three factors for finding an implied private right of action to declare certain credit card debt void where assignees of the right to collect were allegedly not licensed. Under earlier small loan statutes, New Jersey courts have only ever recognized a private right of action to void a loan contract when exercised as part of the express private right to “recover from the lender.” In a footnote, the court appeared to suggest the consumer failed to raise a sound affirmative defense, on public policy grounds, that the debt assignments were void when he permitted entry of default judgment in the original debt collection matter. The court affirmed the trial court and Appellate Division in their decisions to dismiss, with prejudice, for no private right of action (Diana v. LVNV Funding LLC, No. A-52-24 (089939) (N.J. Sup. Ct. Jul. 8, 2026)).

Background. A consumer opened a credit card account. Within the year, the consumer defaulted on a balance of $618.91. The issuer eventually closed the account and sold the outstanding debt to a debt collection entity. Later assignments of the debt eventually placed the right to payment in the hands of LVNV Funding LLC (LVNV, and collectively as to all assignees, the defendants). After the initial charge-off by the issuer, the consumer alleged none of the defendants involved in the assignments were licensed in New Jersey as consumer lenders or sales finance companies, albeit the assignees contested that “emphatically.” No one investigated or prosecuted the defendants for any CFLA violation.

In 2017, LVNV sued to collect, the consumer failed to answer, and the court ultimately entered final judgment by default in favor of LVNV for $703.29, including costs and attorney’s fees.

In 2023, the consumer sued the defendants on behalf of himself and a class of unidentified consumers listed as borrower or purchaser in accounts assigned from an allegedly unlicensed entity to LVNV. The consumer alleged the defendants were not properly licensed as consumer lenders or sales finance companies to take lawful assignment of consumer debt, as required by N.J.S.A. 17:11C-3. The consumer argued the assignments were void as a matter of law under N.J.S.A. 17:11C-33(b). The consumer asked for a declaratory judgment that the loan contract was void and an injunction against future attempts to collect the debt. The defendants moved to dismiss on the basis that the CFLA does not confer a private right of action to void loan contracts.

The same day the defendants moved to dismiss, the consumer moved to vacate the default judgment where it was entered in the Special Civil Part court, where the jurisdictional limit was $15,000 in 2017. That court denied the consumer’s motion without prejudice.

The consumer then moved in his upper trial court Law Division action to oppose the defendant’s motion to dismiss. He cross-moved to transfer, consolidate, and vacate the default judgment entered against him in the Special Civil Part. The Law Division dismissed the consumer’s complaint, with prejudice, and denied his cross-motion. The Law Division reasoned the consumer could not sue to void his loan contract because the CFLA does provide a private right of action. Only the Commissioner of Banking and Insurance had the authority to pursue claims for violations.

The consumer appealed. While the appeal was pending, the Appellate Division decided Francavilla v. Absolute Resolutions VI, LLC, 478 N.J. Super. 171 (App. Div. 2024). Francavilla involved an essentially identical claim. In that matter, the Appellate Division distinguished that the Maryland Consumer Debt Collection Act had a private right of action, whereas the New Jersey CFLA did not.

In the instant matter, the Appellate Division found no basis to diverge from Francavilla and affirmed dismissal. Again, the CFLA did not contain a legislatively crafted private right of action. Instead, consumer lenders who violate the CFLA licensing provision may be guilty of a crime of the fourth degree, the lowest grade of indictable felony in New Jersey.

The Supreme Court granted the consumer’s petition for certification limited to the CFLA private right of action question. The consumer asked for reversal and argued he could sue affirmatively to void his loan contract because N.J.S.A. 17:11C-33(b), quoting the statute, says acquisition of consumer accounts by unlicensed entities under the CFLA, “shall be void.” The consumer conceded that provision did not expressly permit private enforcement, but he asserted an implied right of action would be consistent with CFLA predecessor statutes the Small Loan Law of 1914 (SLL), the Small Loan Act of 1932 (SLA), and the Consumer Loan Act of 1989 (CLA). Each allowed borrowers to void violative loan contracts and recover sums paid.

The court also granted leave to appear as amici curiae to the Consumers League of New Jersey (CLNJ) and National Association of Consumer Attorneys (NACA), which participated jointly, as well as Legal Services of New Jersey (LSNJ). CLNJ and NACA jointly supported a private right of action to void a loan contract. They contended it would further the consumer protection purpose of the CFLA. LSNJ also supported an implied right of action and contended the debt resulted from the use of a “predatory fee-harvester card” that disproportionately harms low-income and minority consumers. LSNJ said a private right of action would curb such abuse.

The defendants asked the court to affirm the Appellate Division. They argued the CFLA has no private right of action and that the Legislature’s removal of the SLL, SLA, and CLA language that permitted borrowers to recover from the lender showed a clear intent to discontinue any private right of action. The defendants further argued the voiding provision was only a criminal sanction that only the State could enforce. Applying de novo review, the court affirmed the trial and appellate courts.

Plain language. Starting with the plain language of the statute, the consumer’s ability to sue turned on whether subsection 33(b) contained an implied private right of action to void a loan contract. The consumer met the first factor for an implied private right of action under Cort v. Ash, 422 U.S. 66, 78 (1975). No one disputed the CFLA was meant to benefit consumers. However, this consumer failed to meet the second and third Cort factors, legislative intent, and consistency with legislative purpose, respectively.

The predecessor statutes “never contained an independent private right to void loan contracts.” There was also no evidence in the history of the CFLA or the predecessor statutes of legislative intent to create a private right of action to void loan contracts. The court analyzed that the ability to affirmatively void a loan contract has always depended on an express private right of action to “recover from the lender.” The legislature pointedly omitted that from the Licensed Lenders Act (LLA) and CFLA.

The court reviewed the legislative history at some length. It analyzed the statutes did not provide a uniform penalty. The LLA and CLA attached specific consequences to specific violations, but the legislature removed the express recovery provision when it enacted the LLA and CFLA.

In contrast, the CFLA “criminal voiding provision” at N.J.S.A. 17:10-21 did not expressly authorize recovery from the lender. It provided potential liability for guilt of a misdemeanor. The legislature kept that nearly verbatim when it enacted the 1997 LLA and 2010 CFLA versions of N.J.S.A. 17:11C-33(b), albeit it changed the criminal penalty from a misdemeanor to the lowest level of indictable felony.

The court continued that the consumer failed to differentiate between the ability to void a loan contract and the right to recover from the lender any such sums paid. “Void” in this context meant the lender could not recover but may keep sums already paid. Under the predecessor laws, New Jersey courts only ever recognized a private right to void a loan contract when exercised as part of an express private right to recover from the lender. Removal of the SLA and CLA express recovery provision counseled firmly against finding legislative intent to confer an implied private right of action to void a loan contract here. There also did not appear to be any case where a borrower asserted an independent right to void a loan contract, and the court did not see any reason to infer one from the criminal voiding provision’s historical use as an affirmative defense.

However, the court did distinguish in a footnote that New Jersey courts have held that public policy precludes enforcement of a contract entered in violation of a licensing statute. Failure to comply with a licensing requirement would ordinarily serve as a bar to enforcement. The courts have generally “therefore permitted voiding a contract when raised as an affirmative defense, without discussing or creating an implied private cause of action.”

The court added that because courts have “become less eager” to allow private enforcement of statutes, it would rely on the legislature to clarify that a criminal statute confers a concurrent private right of action.

The case is No. A-52-24 (089939).

Judge: Hoffman, R.

Attorneys: Yongmoon Kim (Kim Law Firm) for Scott Diana. Nowell D. Bamberger (Cleary Gottlieb Steen & Hamilton LLP) for LVNV Funding LLC, Sherman Originator III LLC, Sherman Originator LLC, MHC Receivables, LLC and FNBM, LLC.

Companies: LVNV Funding LLC; Sherman Originator III LLC; Sherman Originator LLC; MHC Receivables, LLC; FNBM, LLC

LitigationEnforcement: DebtCollection Loans NewJerseyNews