Exploring the Debt Collection Industry

August 10, 2006

NJ Supremes Strike Down Consumer Class Action Ban: ‘Unconscionable and Unenforceable’

Filed under: News — budhibbs @ 10:45 am




Jonathan Hutson, TLPJ, 202-797-8600 x246
F. Paul Bland, Jr., TLPJ, 202-797-8600 x223
Michael J. Quirk, Williams, Cuker & Berezofsky, 215-247-1448

New Jersey Supreme Court Strikes Down Consumer Class Action Ban as ‘Unconscionable and Unenforceable’

TLPJ Wins Nationally-Significant Ruling Against Payday Lender Preserving Consumer Class Actions

In a consumer rights victory of national significance, the New Jersey Supreme Court agreed with Trial Lawyers for Public Justice and a team of consumer rights advocates today that corporations cannot insert and enforce class action bans in their consumer agreements to get a free pass from consumer protection lawsuits. In Muhammad v. County Bank of Rehoboth Beach, Delaware, the Court ruled that a payday lender’s provision that barred borrowers from bringing class action claims violates the public interest protected by New Jersey’s Consumer Fraud Act and is “unconscionable and unenforceable.”

“This is an enormous victory for low-income consumers who were charged interest rates of 600 percent and higher,” said plaintiff’s counsel Michael J. Quirk of Williams, Cuker & Berezofsky in Philadelphia (and formerly of TLPJ), who argued the case before the New Jersey Supreme Court on February 14, 2006. “By allowing these borrowers to bring their claims for class-wide relief, the Court ensured that payday lenders and others who violate consumers’ rights can be held accountable under New Jersey’s consumer protection laws.” Lead counsel in the case are Mark Cuker, also of Williams, Cuker & Berezofsky, and Donna Siegel Moffa of Trujillo, Rodriguez & Richards in Haddonfield, NJ

Writing for the 5-1 majority in Muhammad, Justice Jaynee LaVecchia affirmed the value of class actions to consumers: “The public interest at stake in [the plaintiff’s] ability and the ability of her fellow consumers effectively to pursue their statutory rights under this State’s consumer protection laws overrides the defendants’ right to seek enforcement of the class arbitration bar in their agreement.”

“New Jersey has joined the growing list of states which have held that corporations may not wipe out their customers’ ability to bring class actions as their best and sometimes only means of enforcing consumer protection laws,” said F. Paul Bland, Jr., TLPJ Staff Attorney. “This is why corporations use class action bans – because they effectively get a ‘free pass’ out of consumer protection lawsuits. It is clear that these corporations were not interested in arbitrating consumer protection claims with their customers; rather, they were trying to make it impossible for their customers to bring consumer protection claims in any forum.”

In Muhammad, which the New Jersey Supreme Court has remanded for further proceedings in arbitration, payday loan borrowers are challenging a “rent-a-bank” scheme. Under these schemes, lenders try to evade state usury laws by arranging for their operations to be “fronted” by out-of-state banks permitted by federal law to export their higher home-state interest rates to other states. In this case, payday lender Easy Cash was being fronted by County Bank of Rehoboth Beach, Delaware.

Lead plaintiff Jaliyah Muhammad borrowed $200 in cash from Easy Cash, but after having to “roll over” the loan twice, she paid a total of $180 in interest on a two-month loan – a 608% annual percentage rate (APR), despite New Jersey’s criminal usury limit of 30% APR. Muhammad filed a class action lawsuit on behalf of all New Jersey borrowers, alleging that Easy Cash and two other companies were the true lenders and were violating New Jersey’s usury statute, Consumer Fraud Act, and civil racketeering statute. The suit names County Bank as a co-defendant.

The defendants moved to enforce a mandatory arbitration clause which prohibits any class action against them. The trial court enforced the arbitration clause and the appellate court affirmed. TLPJ joined the case to fight the class action ban and arbitration clause in the New Jersey Supreme Court.

TLPJ’s key briefs and the New Jersey Supreme Court’s decision in Muhammad v. County Bank of Rehoboth Beach are posted on http://www.tlpj.org/briefs_documents.htm.



  1. This is a really GOOD decision from the courts. These “arbitration agreements” have caught a lot of the public off-guard, and skewed things horribly against consumers across the board.

    Another important recent court decision about “arbitration” can be found in:

    Karnette v. Wolpoff & Abramson, L.L.P.
    E.D.Va., 2006.
    August 02, 2006 (Approx. 7 pages)

    Debt collector/law firm could not invoke arbitration clause in MBNA credit agreement, for determination and arbitration of FDCPA claim by debtor, where the agreement provided for arbitration involving claims against “agents” (using the term generally), where the agreement made other specific reference to debt collector without expressly specifying that debt collectors were within the arbitration clause.

    Comment by JAN — September 13, 2006 @ 3:56 pm

  2. I agrree. I still find it incredible that irresponsible lenders now have our court system in their back pockets…As if the collectors weren’t enough…

    Comment by Bonnie — September 14, 2006 @ 9:09 am

  3. I beat W&A at the arbitration thing myself and have gone on to help a number of others do the same. There are ways to fight it. The problem is most people have no idea what to do, so they do nothing and lose by default. Of course, that happens with a lot of lawsuits too – the CAs mostly get default judgments. If more people knew how to mount a proper defense and countersue for the FDCPA and FCRA violations, it would be a whole other ballgame.

    Comment by JAN — September 14, 2006 @ 10:37 am

  4. —- snip —- Karen’s post has been moved to the “Collectors Chime In” category, where it belongs. Karen, please join us in the Collectors’ category 😀

    – JAN

    Comment by Karen — September 29, 2006 @ 5:55 pm

  5. None of the problems would be happing today, if someone would challenge the fact that Credit Cards are technically Illegal. If the company’s that issue them do not have the funds to back them up, then in effect they are creating a currency, which only the U S Congress can do, this is why a lot of banks are pushing debit cards so hard, there’s funds to back them up.

    Comment by Frank Baltra — August 21, 2007 @ 11:25 pm

  6. Interesting point about the credit cards, never thought about them. So much for the land of the free and home of the brave. Another thing, what is the difference between Pressler and Pressler LLP robbing the bank and a guy with a face mask. They are both acting illegally and criminally.

    Comment by Linda — September 9, 2007 @ 8:32 pm

  7. I made a mistake in my last post, I have thought about the credit cards and that Providian and Capitol One are illegally inflating interest and violating Usury Statutes even before they send your account to a collection agency. This also goes back to the mob. Why does the collection agency get away with it, are they held to lower standards-lol. I hear all these stories in the paper about cracking down on the mob what about cracking down on the collection industry and everyone involved. You know it would not surprise me if they paid off people in the FTC, everyone has a price. Not many people have morals anymore or human decency. Just look at Pressler and Pressler LLP, they will take an SSI check from an 80 year old.

    I had never thought of credit card in the way that you say. Yes you are right only the U.S. Mint/Federal Reserve can create currency. I think it started around the civil war or something like that and before then we used gold and silver as a means of currency.

    Comment by Linda — September 9, 2007 @ 8:43 pm

  8. When a law firm is collecting for his client. A recovery company name that is also owned by attorney. What is that considered. A letter from attorney states his client, the company that purchased the debt which he owns has hired him. Is this considered a front operation. Does either the attorney or the recovery company company have to be bonded?

    Comment by Carmen — November 8, 2007 @ 2:44 pm

  9. The law firms paralegal harrass and make threatening statements to me on the phone. I asked that they not continue to call me. I send a letter to law firm requesting debt verification, proof of debt ownership, proof of client licensing, method of balance. I rceived from law firm a letter, with original creditor, original balance, interest and attorney fees. I just 2 days ago received law suit. I dont get it. Is this legal.

    Comment by Carmen — November 8, 2007 @ 2:47 pm

  10. Carmen please post your questions in the Help, Advice section. Someone may be able to help you there.

    Comment by impishredhead — November 9, 2007 @ 12:31 pm

  11. I found this blog to be helpful and very interesting. Thank you for taking the time to write. I look forward to you writing in the future.

    Comment by Troy — January 27, 2008 @ 7:27 pm

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