You shouldn’t really bother with James 2 when talking with Protestants. If you want to really get through to them, you have to use Paul Alone (see the link in my signature for a good blog on how to use Paul Alone to easily outdo a Protestant on Salvation).
There is certainly a problem with terminology when talking with Protestants. The terms “saved” and “justified” can mean the same thing, depending on the context. For example, Ephesians 2:8 does not use the term “justified” but it does use the term “saved,” yet Protestants would say this verse is speaking of Justification. Similarly, Paul does speak of being justified by faith, but this refers to being saved by faith.
The main error that Protestants run into is confusing getting Saved/Justified with a different concept of attaining Eternal Life. The two are not the same. To get Saved/Justified means you’ve left your life of sin and become reconciled to God as an adopted child. But you don’t actually become worthy of Eternal Life unless you are Judged worthy of it after you live a life of Christian love and faithfulness. This is why Paul doesn’t speak of “eternal life” in places where he speaks of “justification,” but Paul does speak of “eternal life” in places where it refers to a Christian being judged by their lifestyle (e.g. Rom 2:5-8; Gal 6:7-9).
