What You Need to Know:

• New Jersey Attorneys Can Now Freely Practice Debt Adjustment Services – The Appellate Division struck down the state's prohibition on attorneys being "principally engaged" in debt adjustment work, clearing the way for law firms to focus their practice on debt negotiation, bankruptcy representation, and creditor defense without fear of civil or criminal penalties.
• Court Reaffirms Exclusive Judicial Authority Over Legal Practice – This decision reinforces that only the courts, not state agencies or legislators, have the power to regulate what attorneys can and cannot do in their legal practice. Any legislative attempt to limit attorneys' scope of practice that encroaches on this judicial authority will be deemed unconstitutional.
• Vague Regulatory Standards Cannot Govern Attorney Conduct – The ruling establishes that regulatory provisions affecting attorneys must provide clear, measurable standards. The state agency's inability to define what "principally engaged" meant or provide criteria for enforcement rendered the law unconstitutionally vague and denied attorneys due process.
• Debt-Related Legal Services Are Firmly Within the Practice of Law – The court clarified that activities like negotiating with creditors, defending collection cases, filing bankruptcy petitions, and advising clients on debt management strategies are core legal services that cannot be restricted by non-judicial regulatory schemes.

Introduction

In a recent opinion from the New Jersey Appellate Division, approved for publication, the Court considered a constitutional challenge to a specific provision in New Jersey’s Debt Adjustment and Credit Counseling Act (“DACCA”), N.J.S.A. 17:16G-1 to -9, that prohibits attorneys from providing debt adjustment services to clients if they are “principally engaged” as a debt adjuster. Anchor L. Firm, PLLC v. State, A-0052-23, 2025 N.J. Super. LEXIS 37 (App. Div. May 9, 2025). The Appellate Division ultimately held that the provision was unconstitutional as an impermissible encroachment on the Judiciary’s exclusive authority over the practice of law.

Background

In relevant part, DACCA prohibits debt adjusters in the state from operating for profit and requires nonprofit agencies performing debt adjustment activities to obtain a license from the New Jersey Department of Banking and Insurance (“DOBI”). Violations of the Act can result in civil penalties, as well as fourth-degree criminal liability under N.J.S.A. 2C:21-19(f). From 1961 to 1979 (under the predecessor statute, the Debt Adjusters Law) and then until 1986 (following the enactment of DACCA), DACCA contained an exception for attorneys who were exempt from its provisions and permitted to engage in debt adjustment activities. However, following a 1986 amendment, that exemption was limited to attorneys who were “not principally engaged as a debt adjuster[.]” Subsequent amendments did not alter this limited attorney exemption.

Plaintiff Anchor Law Firm, PLLC, and a partner at the firm, Andrew M. Carroll, Esq. (“Plaintiffs”) represent debtors in bankruptcy and collection cases seeking to have their debts adjusted through negotiation and litigation. In March of 2021, the Office of Attorney Ethics (“OAE”) launched an investigation regarding whether Plaintiffs were “principally engaged” in the practice of debt adjustment in contravention of DACCA. The OAE’s investigation was administratively stayed when the Plaintiffs raised a challenge in the Law Division to the constitutionality of DACCA. The defendants in the action were the State of New Jersey, the Attorney General and the DOBI Commissioner in their official capacities. Plaintiffs’ argument was that DACCA effectively prevented attorneys from practicing law if they were “principally engaged” in a legal practice involving debt adjustment and that the aforementioned attorney exemption violated the New Jersey Constitution’s separation of powers doctrine as well as being unconstitutionally vague and overbroad.

Plaintiffs’ complaint sought a declaratory judgment declaring that DACCA was unconstitutional. During ensuing discovery, Plaintiffs sought testimony from DOBI and DOBI designated its Chief of Consumer Finance Operations (the “DOBI Official”) as its representative. Notably, the DOBI Official struggled to precisely explain how to measure whether or not an attorney was “principally engaged” in debt adjustment services. The DOBI Official also admitted that DOBI had no rule, criteria or methodology to determine when an attorney is “principally engaged” as a debt adjuster. Following the close of discovery, the parties moved and cross-moved for summary judgment. The lower court granted the Defendants’ motion and found no merit to Plaintiffs’ challenges to DACCA exemption. Plaintiffs appealed.

Analysis

With respect to Plaintiffs’ separation of powers argument, the Appellate Division began its analysis by recapping the history of the adoption of New Jersey’s State Constitution. Since the seminal case of Winberry v. Salisbury, 5 N.J. 240, 247 (1950), which was decided shortly after the adoption of the New Jersey Constitution, the Supreme Court of New Jersey has had preeminent domain over the legal practice and procedure, and rule-making powers related to same. Thus, the Supreme Court of New Jersey has plenary authority to regulate the legal profession in New Jersey. However, the State Constitution also contemplates the interdependence and cooperation of the co-equal branches of government and the New Jersey Supreme Court has the authority to permit or accommodate the exercise of powers of other government branches even to the extent that they may encroach on the Judiciary’s exclusive domain. For example, the Supreme Court has held that courts may consider whether the Judiciary "has fully exercised its power with respect to the matter at issue" and, if not, "whether the statute serves a legitimate legislative goal, and, concomitantly, does not interfere with judicial prerogatives or only indirectly or incidentally touches upon the judicial domain." Ferreira v. Rancocas Orthopedic Assocs., 178 N.J. 144, 163 (2003).

The separation of powers issue hinged on whether the attorney exemption, as applied to attorneys who principally engage in debt adjustment practice, constituted an undue encroachment on the Supreme Court of New Jersey’s “exclusive authority” to regulate attorneys. In deciding this question, the Appellate Division first considered what is meant by the term “practice of law.” Clearly, that term is not limited to merely conduct that occurs in court, but also extends to activities in non-litigious fields that require legal knowledge, training, skill and ability. Prior case law has held that this includes the “rendering of advice and assistance in obtaining extensions of credit and compromises of indebtedness.” State v. Rogers, 308 N.J. Super. 59, 67 (App. Div. 1998). Accordingly, this also includes the following actions, when performed by an attorney:

• Defending a client in a collections case and advocating the court to reject or reduce the amount of the creditor's claim
• Negotiating with a creditor on behalf of a client, either before or during litigation;
• Preparing and filing a bankruptcy petition on behalf of a client
• Evaluating a client's debt liabilities and whether they are collectible under the law in preparation for negotiating or litigating on behalf of the client
• Advising a client with debts how best to discharge, consolidate, or compromise those debts in a lawful manner

The Court noted that each of these activities, which can comprise the practice of law when performed for clients with debts, could fall within DACCA’s definition of a “debt adjuster” which is defined as one who “acts or offers to act for a consideration as an intermediary between a debtor and his creditors for the purpose of settling, compounding, or otherwise altering the terms of payment of any debts of the debtor.” N.J.S.A. 17:16G-1(c)(1). Accordingly, a certain activity could simultaneously amount to the practice of law as well as a debt adjustment activity.

As a result, the Appellate Division found that DACCA was exposing lawyers who “principally engage” in debt adjustment services to civil and criminal sanctions and discouraged attorneys from undertaking such matters, which was contrary to the aim of the Judiciary’s regulation of the practice of law which is to serve the public interest. Therefore, the limited attorney exemption impermissibly encroached on the Judiciary’s exclusive authority over the practice of law as set forth in the State Constitution.

Regarding Plaintiffs’ vagueness argument, the Appellate Division similarly found that this too constituted an independent basis for finding the provision unconstitutional. The Court noted that DOBI’s representative could not explain how “principally engaged” was measured, nor was there any definition in DACCA, nor did DOBI have any rule, regulation or criteria to make such a determination. Attorneys were necessarily required to “conjecture” about its meaning and could reasonably differ as to its application. Thus, attorneys were denied due process because of the statute’s failure to provide adequate and fair notice. Furthermore, DACCA was impermissibly vague as it allowed a public entity (DOBI) such broad powers that a violation of the statute would hinge on a public official’s subjective views of the conduct.

Takeaway

This case reinforces the principle that regulation of attorneys and conduct is exclusively within the province of the courts and that legislative action that encroaches on that authority and limits the ability of attorneys to represent their clients will be overturned as unconstitutional. Finally, the decision leaves no doubt that New Jersey attorneys are permitted to engage in debt adjustment services without fear of civil or criminal penalties.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Matthews Florez at mflorez@riker.com or Shelley Wu at swu@riker.com.