Issues & Legislation
New Jersey’s Consumer Fraud Act Isn’t Working
More Lawsuits, Fewer Jobs at the Worst Possible Time.
THE PROBLEM
The New Jersey Consumer Fraud Act (NJCFA) was enacted in 1960 to supplement federal statutes that protect citizens against deceptive business practices. In recent years, the NJCFA has become a lawsuit magnet. The trial bar and plaintiffs from New Jersey and around the country flock to our courthouses because it’s easy to exploit unique loopholes in our law that promise hefty jury awards.
Suits alleging NJCFA violations are increasingly common because it has become so easy to file a suit. Today, plaintiffs routinely exploit these loopholes as an avenue of first resort to resolve even minor business disputes where there are many alternatives to litigation.
Consider these glaring loopholes that are enriching plaintiffs and the trial bar at the expense of New Jerseyans:
- Plaintiffs do not have to prove that defendants actually defrauded them to recover damages. In many cases a technical violation will suffice.
- Plaintiffs do not need to show out-of-pocket losses.
- Plaintiffs do not need to live in New Jersey, and in many cases the transaction does not need to have taken place in NJ, to file a claim.
THE CONSEQUENCES
Discouraging job creation and entrepreneurship in New Jersey. Victims of frivolous lawsuits are often forced to move out of New Jersey to a state with a better business climate in order to remain viable. Conversely, the threat of NJCFA lawsuits also deters legitimate businesses from coming to New Jersey. Putting lawsuits ahead of common sense to solve routine business disputes discourages much-needed job creation and encourages a diminished tax base, less vibrant communities and higher prices for goods and services.
Higher costs for consumers. When abusive NJCFA lawsuits are successful, consumers ultimately lose. Faced with a barrage of multimillion dollar lawsuits- though questionable in merit- a New Jersey-based pharmaceutical company was forced to pull a popular acne medicine from the shelves in 2009, even though the product had helped millions of people worldwide.
Wasting public funds. As New Jersey streamlines its state budget and taxpayers are forced to do more with less, frivolous litigation is costing our courts precious time and resources. One recent example is the case of Bosland v. Warnock Dodge Inc. where the defendant unintentionally overcharged the plaintiff for car registration fees by about $40. In a striking blow to common sense, the customer sued under the NJCFA as a first resort instead of simply asking the dealer for a refund. The case went all the way to the New Jersey Supreme Court – which ultimately sided with the plaintiff.
NJLRA'S SOLUTION
Legislative action is needed to close those loopholes in the NJCFA which allow abusive lawsuits to flourish. Specifically, the New Jersey Legislature should amend the NJCFA to:
- Limit the Act to transactions occurring in the State of New Jersey. This will limit the ability of out-of-state plaintiffs to use the NJCFA when their own state has existing and viable consumer protection laws and little to no nexus to NJ exists;
- Require plaintiffs to prove that they relied on the misrepresentation they are challenging in their lawsuit when they purchased the product or service;
- Limit the NJCFA to consumers only, excluding business-to-business suits;
- Limit the apportionment of attorneys’ fees only to those fees reasonably attributable to the NJCFA claim;
- Limit the NJCFA’s applicability to already-regulated industries subject to the Federal Trade Commission and other conflicting regulatory structures;
- Allow the court to have discretion in awarding treble damages, as in many other states.
