Gibson, J.c.c. (temporarily assigned).
This is a suit on a note. The loan, amounting to $638.45, was made on June 26, 1975, whereafter defendants defaulted leaving a balance due of $525.92 plus interest. The issues raised by the defense do not contest the amount owed but rather speak to the right to assert a set-off based on the claim that the note violates several provisions of the federal Consumer Credit Protection Act, 15 U.S.C.A. 1601 et seq. and the New Jersey Small Loan Law, N.J.S.A. 17:10-1 et seq. The threshold question, however, is whether the claimed set-off is barred by the one-year statute of limitations found in § 1640 (e) of 15 U.S.C.A. Defendant admits that the set-off comes outside of the one-year period but urges that the above limitation applies only to affirmative claims and is therefore inapplicable here.
The specific issue to be determined therefore is whether a debtor can set off by way of the damages permitted under the Federal Consumer Credit Protection Act a claim by a lender, when more than one year has elapsed since the claimed violation of the act. There do not appear to be any reported decisions in New Jersey dispositive of this issue. There is a split of authority on this issue outside this state.
15 U.S.C.A. § 1640(e) reads as follows:
Any action under this section may be brought in any United States District Court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation.
The leading case holding against the position of defendant is Ken-Lu Enterprises Inc. v. Neal , 29 N.C. App. 78, 223 S.E. 2d 831 (App. Ct. 1976), cert. den. 429 U.S. 1002, 97 S. Ct. 533, 50 L. Ed. 2d 613 (1976). The court there based its holding on the need for uniformity of federal laws, and an amendment to § 1640 which provided as follows:
A person may not take any action to offset any amount for which a creditor is potentially liable to such person under subsection (a)(2) of this section against any amount owing to such creditor by such person, unless the amount of the creditor's liability to such person has been determined by judgment of a court of competent jurisdiction in an action to which such person were a party. [15 U.S.C.A. 1640(h)]
The above subsection was added to § 1640 in 1974 (§ 408(a) of Public Law No. 93-495) and was applied by the above court to preclude a counterclaim for a set-off. Subsection (h) was interpreted to preclude a set-off for anything but actual damages (as opposed to the penalties provided by 15 U.S.C.A. 1601 et seq.). Citing from a text by Ralph C. Clontz, Jr. the court noted that the author seems clearly to establish that unless a creditor's civil liability for disclosure errors has been established by a proper judgment, such potential liability may not be asserted as a defense in any action brought by the creditor to collect an unpaid balance. Ken-Lu Enterprises Inc. v. Neal, supra , 29 N.C. App. at 83, 223 S.E. 2d at 835. This ruling goes beyond simply holding that a counterclaim cannot assert a set-off beyond the one-year limit. The holding was followed in Phil Mechanic Constr. Co. v. Gibson , 30 N.C. App. 385, 226 S.E. 2d 837 (App. Ct. 1976). Other cases specifically holding that the one-year statute applies to counterclaims include Gills v. Fisher Hardware Co. , 289 So. 2d 451 (Fla. App. 1974), and Hodges v. Community Loan & Invest. Corp. , 133 Ga. App. 336, 210 S.E. 2d 826 (App. Ct. 1974).
There are a number of cases from other jurisdictions that hold that the one-year limitation period does not apply to
counterclaims. A leading case is Termplan Mid-City Inc. v. Laughlin , 333 So. 2d 738 (La. App. 1976). The court there held that
The above decision, however, was based not on 15 U.S.C.A. 1640(e) but rather a state statute of Louisiana which permitted utilization of a prescribed right as a defensive contention. L.S.A.C.C.P. Art. 424. The court specifically noted that it was not deciding the issue under the federal provision asserted here. The Louisiana ...