Much like similar federal consumer protection laws, the New Jersey Consumer Fraud Act (NJCFA) was enacted to promote good faith and fair dealings in the marketplace. Given the act’s expansion over the last several decades, creditors who offer, sell, or provide consumer credit are also subject to the NJCFA. Compliance with the NJCFA requires consulting an attorney with a deep understanding of how to avoid liability to consumers. The act declares unlawful the use of fraud or any unconscionable commercial practice in connection with the sale or advertisement of merchandise or real estate
Potentially Covered Transactions
Commercial transactions that fall under the New Jersey Consumer Fraud Act include:
- Engaging home improvement contractors
- A contract to purchase a home
- Renting an apartment
- Buying a car from a dealer
- Car mechanic’s services
- Hiring a moving service
- Misrepresenting a condition of any commercial product
Conduct That Violates the Act
A claim can be wedged into almost any transaction under N.J.S.A. 56:8-2. Basically, consumer fraud can be committed by an (1) affirmative misrepresentation; (2) a knowing omission; or (3) a violation of one or more specific consumer protection statutes. In order to prevail on a claim under the NJCFA, a plaintiff must prove three elements: (1) unlawful conduct by the defendant; (2) an ascertainable loss by the plaintiff; and (3) a causal relationship between the unlawful conduct and the ascertainable loss.
The New Jersey Consumer Fraud Act is unique, broader sweeping, and more stringent on businesses than other consumer protections statues. Consequently, New Jersey’s business owners can be held liable for even the slightest “unfair” or “deceptive” activity (e.g. failure to articulate a payment term in the purchase agreement although it caused the consumer nominal injury). Hypothetically, if a home improvement contractor built a home exactly to a customer’s specification, that contractor could face having to refund the customer three times what the contractor charged for the service. And if the actions are widespread among the customer base, a business owner is more likely than not going to face a class action suit, which compounds the damages significantly forcing the business owner to pay out a large settlement.
Under the NJCFA, a plaintiff who successfully proves both an unlawful practice and a resulting “ascertainable loss” is entitled to an award of treble (three times) damages and attorney’s fees and court costs. Another distinguishing characteristic is that the NJCFA requires treble damages as opposed to making it discretionary for the court: “In any action under this section the court shall, in addition to any other appropriate legal or equitable relief, award threefold the damages sustained by any person in interest.” Thus, the plaintiff may not have acted in bad faith and yet the increased exposure in damages is substantial.
Who Can Sue
A plaintiff can be an individual consumer and unlike some other consumer protection statutes, a plaintiff can also be a business. Subsequently, the fact that businesses are covered under the act can be detrimental for owners who violate the act because they can be held personally liable despite the limited liability shield offered by incorporation.
The New Jersey Consumer Fraud Act also can extend to residents of other states where the transaction occurred. This is true so long as the defendant is headquartered in New Jersey. For example, Delaware and New York have expressly held that non-resident plaintiffs may not bring consumer protection claims under equivalent state consumer protection statutes for out of state transactions. As stated previously, the claims often come in the form of class action suits. Therefore New Jersey business owners face claims on a national scale. This incentivizes law firms to seek out clients all over the United States in an effort to bolster their suit. At the same time, this breadth of exposure can deter New Jersey businesses from expanding their business out of state.
What Internal Policies Should Focus On
It is imperative that business owners therefore implement a comprehensive set of internal policies and procedures to ensure its employees abide by the NJCFA. These policies and procedures should focus on:
- Consulting with an attorney on how its business operations could be subject to the NJCFA.
- Training programs for employees on how to address consumers during initial and subsequent communications.
- Elimination of boilerplate contracts that often include unilaterally favorable terms to the business.
- Controlled marketing practices to avoid misrepresentations around consumer rights and material terms of the purchase agreement.
- Compliance with Federal Consumer Laws to limit exposure as there is overlap between prohibited activities under consumer protection laws.
- Technology to improve record retention and bolster data security.
- Forming an enterprise risk team.
- Monitoring of employee communications with consumers.
For More Information about the New Jersey Consumer Fraud Act, Contact Us Today
Consumer protection is important. But in the information age when due diligence is more easily accomplished by a consumer and consumers are empowered by access to online reviews, protecting small business owners from frivolous litigation is often overlooked. For more information about the New Jersey Consumer Fraud Act, contact Snellings Law, LLC today.