Three western New York credit unions have filed a federal class-action lawsuit challenging a new New York state law set to go into effect at the end of the month that lowers the interest rate on debt judgments from 9% to 2%.
The plaintiffs in the complaint filed April 4 in U.S. District Court in New York City include Greater Chautauqua Federal Credit Union, in Chautauqua County; Boulevard Federal Credit Union, in Erie County; and Greater Niagara Federal Credit Union, in Niagara County.
The plaintiffs claim the amended law violates their Fifth and Fourteenth Amendment rights.
The defendants in the case are New York State Chief Administrative Judge Lawrence K. Marks, Chautauqua County Sheriff James B. Quattrone, Erie County Sheriff John C. Garcia, and Niagara County Sheriff Michael J. Filicetti.
Marks is a defendant because his duties include establishing policies and procedures concerning the entering and execution of judgments.
The sheriffs are defendants in the case because they serve judgment executions on debtors, check that the interest charged is accurate and that payments are applied properly.
The plaintiffs are represented by the law firm Venable LLP, which is based in Washington, D.C.
Post-judgment interest compensates the holder of the judgment for the delay and expense in obtaining payment and to encourage prompt payment by debtors, according to the complaint.
The new interest rate is retroactive to the date of the original entry of judgment. Under the new law, the interest on any outstanding consumer judgments that has been accruing at a rate of 9% per annum must be recalculated using the new rate of 2% rate.
Also, by June 29, 2022, creditors must file amended executions with the sheriff, or other enforcement officer, containing the recalculated interest amount.
The new law does not include any guidance on how to apply a retroactive recalculation, or on the consequences of a failing to issue an amended execution, according to the complaint.
“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 complaint says.
The plaintiffs argue that the change will “eradicate millions of dollars from the balance of judgments lawfully due and owing to judgment creditors.”
“This loss will have devastating effects on businesses of all sizes, nonprofit credit unions, and individual creditors,” they wrote.
Some of the judgments held by the plaintiffs are more than 15 years old.
“The sum total of the outstanding judgments against consumers held by Plaintiffs, which includes both the original judgment amount and post-judgment interest totals over $3.8 million and the accrued interest totals nearly $1 million,” according to the complaint.
Greater Chautauqua has about 230 outstanding judgments and is owed approximately $1.3 million, which includes at least $125,000 in post-judgment interest. Boulevard has about 115 outstanding judgments and is owed about $1.5 million, which includes at least $245,000 in post-judgment interest. Greater Niagara has more than 100 outstanding judgments and is owed more than $1 million, including $195,000 in post-judgment interest.
“The amendment will affect approximately 450 outstanding judgments with a total estimated amount of approximately $3.8 million, including the original judgment amount and post-judgment interest,” according to the complaint.
“Statewide, these figures are many orders of magnitude greater. The reduction in accrued post-judgment interest will reduce the value of judgments statewide by tens of millions of dollars,” according to the complaint.
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