Three federal credit unions have sued to block a new state law that would dramatically lower the statutory interest rate on post-judgment consumer debt, saying they stand to lose millions if the measure takes effect later this month.
the proposed class action The lawsuit argued that the planned change, which would reduce interest rates from 9% to 2% effective April 30, amounted to an unconstitutional hold and a violation of due process for entities holding judgments against the consumers.
“This loss will have devastating effects on businesses of all sizes, nonprofit credit unions and individual creditors,” the lawsuit states.
The complaint also said the law, which Governor Kathy Hochul signed into law in December, applied both retroactively and prospectively, but claimed the legislation provided “virtually no guidance” on how to recalculate the interest on debts already due.
“Indeed, even throughout the legislative process, there was widespread confusion not only among judgment creditors and their representatives regarding the proper method of applying retroactive recalculation, but also among supporters of the amendment,” says the 20-page file. “Because of this deficient and vague language, judgment creditors and sheriffs across the state face substantial uncertainty as to how to comply.”
The plaintiffs, Greater Chautauqua Federal Credit Union (Falconer, NY), Boulevard Federal Credit Union (Buffalo, NY) and Greater Niagara Federal Credit Union (Niagara Falls, NY), said they together held $3.8 million in outstanding judgments against consumers, with accrued interest totaling nearly $1 million.
The lawsuit, filed Monday in Manhattan federal court, sought a preliminary injunction to prevent the new law from taking effect at the end of the month.
According to the complaint, creditors stood to see millions of dollars “eradicated” under the new law, while debtors stood to gain a financial “windfall” for late payments of their judgments.
Additionally, the lawsuit argued that “given the uncertainty about how to recalculate interest, New York is likely to see a massive influx of consumer complaints and litigation accusing judgment holders of wrongdoing.” calculated the reduction of accrued interest”.
The complaint named the sheriffs of Chautauqua, Erie and Niagra counties as defendants in their official capacities, as well as Chief Administrative Judge Lawrence K. Marks of the New York State Courts.
A spokesperson for the Unified Court System declined to comment on the lawsuit.
Tuesday afternoon, the representation of the parties did not appear on the public list.
The lawsuit, filed in the U.S. District Court for the Southern District of New York, is captioned Greater Chautauqua Federal Credit Union v. marks.