Proposed New Jersey Legislation Would Protect Auto Dealers (and Lenders) from Harshest Provisions of the Consumer Fraud Act

A mere 17 days after it was first introduced, a bill to amend the New Jersey Consumer Fraud Act (CFA) easily passed the New Jersey Senate by a margin of 29-5. The proposed legislation would expressly protect auto dealers from the CFA’s more onerous remedies and push more auto fraud cases to arbitration.

Senate Bill 2740 is co-sponsored by James Beach (D. Cherry Hill) and Nilsa Cruz-Perez (D. Audobon), and passed the state senate this summer by an overwhelming majority. If approved by the New Jersey Assembly, the bill would substantially curtail a prevailing plaintiff’s recovery against auto dealers in fraud cases. In its current form, the CFA mandates that a liable party pay treble damages and reasonable attorneys’ fees. The proposed amendment, however, would carve out an exception for cases brought against auto dealers, eliminating treble damages unless a court finds an “egregious violation” of the CFA. (Unfortunately, the term “egregious violation” is not defined.) Additionally, “reasonable attorneys’ fees” – which are uncapped under the current version of the CFA – would be capped at “$1,000 or up to one-third of the amount of [actual] damages” in cases against auto dealers. (A prevailing plaintiff would still recover filing fees and other reasonable costs of suit.) Such a cap on attorneys’ fees would radically reduce the incentive for plaintiffs’ attorneys to bring individual CFA claims.

If passed, this dealer-friendly legislation will also indirectly benefit the banks that finance New Jersey auto loans. A regulation by the Federal Trade Commission (FTC) known as the “Holder Rule,” allows a car buyer to assert refund claims against a lender based on a car dealer’s misconduct. For this reason, plaintiffs routinely sue both the dealer and the bank that holds the auto loan, even if the bank did nothing wrong. Should the New Jersey legislature enact SB 2740 in its proposed form, such a substantial reduction in the plaintiff’s potential recovery from the dealership could hasten modest global settlements of CFA claims at the early stages of litigation, saving all defendants time and money.

There is another curious provision in SB 2740 that could radically change the landscape of consumer fraud litigation against dealers. SB 2740 – in its present form – would make it a "conclusive presumption" that a consumer received a copy of a contract if they sign a document acknowledging receipt. This provision seems to be intended to dissuade litigation in favor of arbitration. Although it is routine for dealers to include arbitration agreements among the sales paperwork, plaintiffs seeking to avoid arbitration often claim that they were not shown the arbitration clause before signing the documents or were not provided copies of the arbitration agreement. The New Jersey Supreme Court recently granted certification in one such case: Goffe v. Foulke Mgmt. Corp., Nos. C-72, 081258, (N.J. Sep. 26, 2018). Regardless of how Goffe turns out, the “conclusive presumption” language proposed in SB 2740 would make it far easier for auto dealers to enforce mandatory arbitration clauses included among the purchase documents.

Should the bill become law, it would become effective seven months after enactment.