3 CUs Seek to Block New Law Slashing Statutory Interest Rates on Consumer Debt

Three federal credit unions have sued to block a new state law that would significantly lower the statutory interest rate on post-judgment consumer debts, saying they stood to lose millions if the measure takes effect later this month.

The proposed class-action lawsuit argued that the planned change, which would slash interest rates from 9% to 2% beginning April 30, amounted to an unconstitutional taking and due process violation for entities holding judgments against consumers.

“This loss will have devastating effects on businesses of all sizes, nonprofit credit unions, and individual creditors,” the suit said.

The complaint also said that the law, which Gov. Kathy Hochul signed in December, applied both retroactively and on a forward-looking basis, but claimed the legislation provided “virtually no guidance” on how to recalculate interest on debts that were already owed.

“Indeed, even throughout the legislative process, there was widespread confusion among not only judgment creditors and their representatives regarding the proper method of applying the retroactive recalculation, but also among the amendment’s supporters,” the 20-page filing said. “As a result 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, N.Y.), Boulevard Federal Credit Union (Buffalo, N.Y.) and Greater Niagara Federal Credit Union (Niagara Falls, N.Y.), said they held a combined $3.8 million in outstanding judgments against consumers, with accrued interest totals of nearly $1 million.

The lawsuit, filed Monday in Manhattan federal court, sought a preliminary injunction to stop the new law from taking effect at the end of the month.

According to the complaint, creditors faced the prospect of seeing millions of dollars “eradicated” under the new law, while debtors stood to gain a financial “windfall” for delays in paying their judgments.

What’s more, the lawsuit argued that “given the uncertainty in how to recalculate the interest, New York is likely to see a massive influx of consumer complaints and litigation accusing judgment holders of miscalculating 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 spokesman for the Unified Court System declined to comment on the lawsuit.

As of Tuesday afternoon, representation for the parties was not listed on the public case docket.

The suit, filed in the U.S. District Court for the Southern District of New York, is captioned Greater Chautauqua Federal Credit Union v. Marks.