Debt Collection on Store Credit Accounts Has Four-Year Statute of Limitations, According to New Jersey Appellate Court

chess gameDebt collection is, unfortunately, an inevitable part of doing business for just about every business in New Jersey, the country, and probably the world. Whenever a business relies on customers or clients for revenue, it runs the risk of unpaid bills. Any business or individual engaging in debt collection should be aware of the time limit to bring a lawsuit, known as the statute of limitations (SOL). The New Jersey Appellate Division recently ruled in a case involving a dispute over retail store credit account debts. The parties disagreed over whether the six-year SOL for breach of contract claims should apply, or the four-year SOL for sales of goods. The court ruled that the four-year time limit applies. Midland Funding v. Thiel, et al., Nos. A-5797-13T2, A-0151-14T1, A-0152-14T1, slip op. (N.J. App., Aug. 29, 2016).

State and federal laws, such as the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., regulate businesses that engage in debt collection activities on behalf of third parties. Creditors that attempt to collect their own debts are also subject to various laws and regulations. Prohibited conduct under the FDCPA includes excessive or harassing attempts to contact debtors. The law establishes a procedure for alleged debtors to dispute a debt and to receive documentation of the alleged debt from the debt collector. Violations of these provisions can result in civil liability to the debtor.

Most debt collection efforts do not lead to lawsuits, but a lawsuit offers the only legal means of compelling payment by a debtor. Under New Jersey law, a plaintiff alleging a breach of contract must bring suit within six years of the date of the alleged breach. N.J. Rev. Stat. § 2A:14-1. A four-year SOL, however, applies to “contract[s] for sale” in New Jersey. N.J. Rev. Stat. § 12A:2-725. State law defines a “contract for sale” as any contract for the “present sale of goods” and “to sell goods at a future time.” N.J. Rev. Stat. § 12A:2-106. Parties to a contract for sale may agree to reduce the SOL to a minimum of one year, but the law expressly states that they cannot extend it beyond four years.

The plaintiff in Midland Funding is the assignee of financial institutions that issue credit cards on behalf of retail stores for use by customers. In three separate lawsuits, consolidated for the purposes of appeal, the defendant debtors argued that the four-year SOL for sales of goods should apply. The plaintiff had filed suit against each defendant more than four years, but less than six, after the defendants’ defaults. The court rejected its arguments for the six-year SOL, finding that the specific purpose of the credit accounts—the purchase of goods from a specific retail store—required the application of the four-year SOL.

Business formation attorney Samuel C. Berger represents New York City and Northern New Jersey businesses and business owners. We offer fixed-fee packages of legal services that cover a wide range of issues, providing our clients with the specific legal assistance they need. Contact us today online, at (201) 587-1500, or at (212) 380-8117 to schedule a confidential consultation with a knowledgeable and experienced business advocate.

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