Debt buying or collecting companies based in New Jersey or out-of-state merchants that want to work with clients within the Garden State should consult attorneys to determine whether they need licenses to operate. This is recommended because a court decision has further muddied the water in terms of what is required to legally operate a debt collection business in the state.
Following the March 2014 U.S. District Court decision in Veras v. LVNV Funding, LLC, passive and active in-state and out-of-state debt collection agencies and related businesses should consult with counsel as to whether they need to obtain consumer lender licenses in New Jersey. The New Jersey Consumer Financing Licensing Act (NJCFLA) requires people engaged in businesses as “consumer lenders” obtain consumer lending licenses in order to operate in the consumer loan business. According to the act, any business “buying, discounting or endorsing notes, or of furnishing, or procuring guarantee or security for compensation in amounts of $50,000 or less, shall be deemed to be engaging in the consumer loan business.”
In the case, the court determined that MRS, a debt collector that was acting on behalf of the passive debt buyer, attempted to collect debt from Veras on behalf of LVNV. At the time, LVNV was not licensed as a consumer lender under the NJCFLA. The court found that LVNV, therefore, was in violation of the act.
This becomes very confusing for merchants because New Jersey currently has no licensing law that specifically applies to debt buying or collecting agencies on the books, However, the court decision, clearly states you can’t engage in any of debt buying or lending activities as a consumer lender or sales finance company without obtaining a license or licenses from the state Department of Banking and Insurance, according to the court decision. Without any additional legislation, what this court decision does is provide a precedent that could lead to many more legal challenges.
In its decision, the court found the activity by the debt buyer and debt collector better upholds the legislative intent behind the Fair Debt Collection Practices ACT (FDCPA), which was created to monitor all illegal activities that Congress found to be pervasive in the debt collection industry.
Therefore, it is likely that other clients owing money are likely to invoke the FDCPA in court if they find those buying or collecting the debt are working without licenses.
New Jersey’s Bonding Process
Currently, the only requirement in New Jersey that pertains to collection agencies is that those in the industry go through New Jersey’s bonding and registration processes to operate legally.
Under New Jersey law, any business operating as a collection agency or is in the business of collecting or receiving payment for others of any account, bill, or other indebtedness must annually file a Collection Agency Bond Application. The application attests that a $5,000 bond has been filed by the business with the State of New Jersey as required by statute. Additionally, all in-state and out-of-state businesses must file a bond application with New Jersey
A finance statement from the surety company and an executed power of attorney form establishing the attorney-in-fact as the surety’s authorized legal representative must be attached to the application. The application fee is $25 and two witnesses other than the principal are required for each signature on the application. The registration of the bond is mailed to the business after it is reviewed by the state attorney general’s office.
To ensure you are operating under the law, merchants in the industry must look into what is required of them before they begin investigating overdue customer accounts. The best way to be sure is to contact an attorney or to discuss your business practices with the state. With ongoing changes in the sector in numerous states, it is vital that debt collection merchants keep up with developments in the industry.
Obtaining a consumer lending license is one more challenge facing debt buyers and debt collectors. These merchants already have a difficult time securing collection agency merchant accounts due to their backgrounds and their history of excessive chargebacks. Most traditional banks will not even entertain working with such businesses.
eMerchantBroker.com (EMB) specializes in working with high-risk accounts, including collection agencies. EMB’s application process is simple. In addition to merchant accounts, EMB offers electronic payment processing and e-check processing and debit card processing.