Three credit unions have filed a federal class action lawsuit in the Southern District of New York seeking to halt the enforcement or implementation of New York’s recently passed S.B. 5724A which would retroactively and prospectively lower the statutory annual interest rate on consumer debt judgments from 9% to 2%. The credit unions allege that the change in rates – set to take effect April 30, 2022 – violates the United States Constitution’s due process and property protections and should be struck down in its entirety.
New York’s Governor signed the rate reduction legislation in December 2021 thereby changing the state’s judgment interest rate for the first time in forty years. Sponsors of the legislation sought to address concerns that the 9% rate was unduly high in light of other prevailing market interest rates, disproportionately impacted communities of color, and that the COVID-19 pandemic would create further financial hardship for consumers, leading to more interest being accrued on debt judgments. Additionally, legislators noted that there is a significant backlog in unpaid debt judgments that have flooded state courts for decades.
The Complaint alleges that the retroactive application of the law, which requires judgment holders to file amended executions of judgment showing the recalculated rate with local sheriffs’ offices, would eradicate millions of dollars currently owed by judgment debtors and raises substantial compliance uncertainty. The credit unions point to the law’s silence on how to perform the recalculations, which is unclear in situations where payments have been made, and on what the effect, if any, would be of a failure to file an amended execution of judgment.
The lawsuit’s named defendants include the sheriffs of the counties where the credit unions are located as well as the chief administrative judge for New York state courts whose office is tasked with creating the policies and procedures necessary to implement the rate reduction law. The class the credit unions seek to represent consists of similarly situated New York holders of unsatisfied consumer debt judgments.
Along with the Complaint, the credit unions filed a motion for a preliminary injunction to prevent the law from taking effect on April 30. The motion is fully briefed, and the court has scheduled a hearing for the preliminary injunction on April 20, 2022.