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Henderson v. Camden County Municipal Utility Authority

176 N.J. 554, 826 A.2d 615 (2003)

MUNICIPAL UTILITY AUTHORITIES; INTEREST—A municipal utility authority may no longer compound interest on delinquent charges.

A municipal utilities authority (MUA) provided county residents with sewer and water services. A customer stopped making regular payments and then, seven years later, received notice that “her property was subject to a municipal lien and tax sale.” She paid the total charge, half of which was interest. She later learned that the MUA “had compounded interest on her delinquent account.” She then filed a class-action complaint alleging that the MUA’s “assessment of compound interest was unlawful and a violation of [a section of a particular New Jersey statute] because that section authorized the assessment of only simple interest.” The lower court construed the statute to allow compound interest. The Appellate Division reversed, “concluding that the statute did not authorize compound interest.” The matter was appealed to the Supreme Court.

The Supreme Court held that “section 41 of the Municipal and County Utilities Authority Law, N.J.S.A. 40:14B-1 to -70, permits utilities authorities to charge only simple interest, and it was improper for the [MUA] to assess on principal composed in part of unpaid interest charges.” The statute provides for accrual of interest on the “unpaid balance” of service charges. Courts consider compound interest to be “unfairly harsh and oppressive,” and compound interest “is disfavored at common law.” Further, because “[n]o statute is to be construed as altering the common law farther than its words import, “[t]he Legislature’s failure to deviate explicitly from the common-law presumption against compound interest suggest[ed] that [the statute] authorize[d] only simple interest.” and “when the Legislature has authorized compound interest, it has done so explicitly.” Moreover, when the statute was amended to increase the amount of interest, the increase was intended to parallel an increase in a taxation statute, suggesting that the interest contemplated under the municipal utility statute was “simple and not compound interest.” The Court recognized that municipal utility authorities had been charging compound interest for quite some time and therefore its decision actually established “a new rule and should be applied prospectively.” To do so otherwise, “could produce substantial and in equitable results.” All future collections must be restated to backout any compound interest and all municipal liens must similarly be recalculated to “ensure that [compound interest] charges are ‘backed out’ from such liens.”

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