The Southern District of New York has granted a preliminary injunction restraining state officials from implementing or enforcing the retroactive applicability of recently passed legislation (SB 5724A, 244andLeg. Session, c. 831 (New York 2021)) lowering the statutory annual interest rate on consumer debt judgments in New York. On April 4, 2022, plaintiffs filed a complaint and contemporaneous show cause order seeking a preliminary injunction in Greater Chautauqua Federal Credit Union et al v. Marks et al, 22-cv-02753. The complaint seeks certification of a class of “all dissatisfied judgment holders based on consumer debt (as defined in statute), adjudicated in New York State courts prior to April 30, 2022,” alleging that the retroactive reduction of interest constitutes an unconstitutional act. taking ownership without compensation or due process. the Decision and order, published on April 28, 2022, two days before the effective date of the legislation, appears to agree, stating that “the plaintiffs have demonstrated a likelihood of success on the merits of their claim under the clause of plug”. Finding that the postjudgment interest is a protected property interest for purposes of the Fifth Amendment, the Court granted the injunction and ordered the plaintiffs to immediately serve notice of the order on the sheriffs of New York’s sixty-two counties.
Under a New York law that has been in effect for more than 40 years, a statutory annual interest rate of 9% applies to judgments in state courts. S.5724A, reduces the annual interest rate on judgments resulting from consumer debts to 2%. Under the new law, the 2% rate would apply to unpaid judgments rendered before April 30, 2022 as well as to judgments rendered on or after the effective date of the new law. S.5724A defines “consumer debt” as “any obligation or deemed obligation of a natural person to pay money resulting from a transaction in which the money, goods, insurance or services which make the object of the transaction are primarily intended for personal, family or household purposes, whether or not this obligation has been reduced to judgment, including, but not limited to, a consumer credit transaction, as defined in Subsection (f) of Article One Hundred and Five of this Chapter Section 105(f) defines a “consumer credit transaction” in Section 105(f) as “a transaction in which credit is extended to an individual and the money, good or service that is the subject of the transaction is intended primarily for personal, family or household purposes.
The sponsors of the legislation have expressed their position that a 9% rate is outdated and contributes to unpaid judgments in debt collection suits. Lawmakers say the lower judgment rate will help consumers in the wake of the COVID-19 pandemic. The rationale for the legislation states “[t]its legislation is intended to address the hardship imposed on a significant number of New Yorkers by a statutory judgment interest rate that has long been out of step with market interest rates, and which has been intensified by COVID- 10[sic] pandemic.”
It is unclear whether monetary judgments resulting from foreclosures are “consumer credit transactions” within the meaning of CPLR 105(f). Although the bill’s preamble does not specifically refer to foreclosure judgments, in a New York Law Journal article, Bruce Bergman reports that an official from the Office of Courts Administration sent the text of the new law to foreclosure companies. In the articleargues Mr. Bergman, “the judgment resulting from the equitable action of mortgage foreclosures is not, in law, a financial judgment.”
Applicants in Greater Chautauqua Federal Credit Union et al v. Marks et al. are three Western New York credit unions. Plaintiffs filed an amended complaint on April 21, 2022, adding the New York State Attorney General as a defendant. The amended complaint alleges that the plaintiffs owe millions of dollars on hundreds of outstanding consumer judgments, including interest. Ultimately, the plaintiffs seek an order declaring S.5724A unconstitutional and permanently barring its application, as well as an award of attorneys’ fees and other costs on their own behalf and that of a class. of creditors holding unpaid consumer debt judgments prior to the effective date of the legislation.
You may wish to determine whether your institution may be an alleged class plaintiff with the definition pleaded in the Grand Cahutauqua question. You may also want to follow this case to assess any impact on the definition of money judgments and foreclosure judgments as potentially encompassed in any new legislation.