EFFECTIVE APRIL 30, 2022 JUDGMENT RATE

On December 31, 2021, New York Governor Hochul signed into law S5724-A which reduces the annual rate of interest on judgments arising out of a consumer debt where the defendant is a natural person from 9% to 2%. 

"BILL NUMBER: S5724A

SPONSOR: THOMAS
 
TITLE OF BILL:

An act to amend the civil practice law and rules, in relation to the
rate of interest applicable to money judgments arising out of consumer
debt

 
PURPOSE OR GENERAL IDEA OF BILL:

To reduce the judgment interest rate on consumer debt.

 
SUMMARY OF PROVISIONS:

Section 1 amends section 5004 of the civil practice law and rules.

Subdivision (a) states that the interest rate on judgments arising from
consumer debt shall two per centum per annum (1) for any judgments
entered on or after the effective date of this bill and (2) on any part
of post-entry interest on a judgment entered before the effective date

of this bill that is unpaid as of the effective date.

Subdivision (b) defines "consumer debt." Consumer debt consists of any
obligation or alleged obligation of any natural person to pay money that
arose out of a transaction in which the money, property, insurance or
services which are the subject of the transaction are primarily for
personal, family or household purposes, including but not limited to
consumer credit transactions as defined in section 105 of the civil
practice law and rules.

Subdivision (c) states that the new interest rate will not affect any
amounts of money that have been paid toward a judgment, accrued interest
or fees before this act's effective date. The subdivision further states
that a judgment creditor or sheriff cannot be required to refund or
return such amounts to judgment debtors and cannot be required to apply
such amounts to satisfy any part of the money judgment other than fees
or interest upon judgment pursuant to section 5003 of the civil practice
law and rules.

Subdivision (d) adds a severability clause.

Section 2 amends section 3215 of the civil practice law and rules. The
amendment to subdivision (f) provides that an application for a default
judgment should include, if applicable, a statement that the consumer
debt interest rate applies; and subdivision (i) provides that when
default is sought for failure to comply with a stipulation settlement,
the affidavit should include, if applicable, a statement that the
consumer debt interest rate applies.

Section 3 amends section 3218 of the civil practice law and rules. The
amendment to subdivision (1) provides that when judgment by confession
is sought, it should include, if applicable, a statement that the
consumer debt interest rate applies.

Section 4 amends section 5230 of the civil practice law and rules. The
amendment to subdivision (a) provides that, if applicable, an execution
should include the applicable interest rate if the consumer debt inter-
est rate applies; and further provides that if the applicable interest
rate changes while an execution is ongoing, the judgment creditor must
issue an amended execution within sixty days of the effective date of
the act and that such amended execution is effective as of the date of
the rate change. The amendment to subdivision (b) provides that, if the
applicable interest rate changes while an execution is ongoing, the
clerk of the court in which the judgment was first docketed or the
attorney for the judgment creditor shall be authorized to issue an
amended execution to the sheriff and shall issue such amended execution
within sixty days of the effective date of the act, effective as of the
date of the rate change.

Section 5 amends section 5231 of the civil practice law and rules. The
amendment to subdivision (a) provides that, if a judgment creditor
issues an amended execution pursuant to section five hundred and thirty
because the applicable interest rate changes, the income execution need
not provide a notice to the judgment debtor that if he or she does not
commence payments, the execution will be served on the person or entity
from whom he or she is or will receive money.  The amendment to subdivi-
sion (d) provides that if the judgment creditor issues an amended
execution because the applicable interest rate changes, the sheriff
shall serve a copy of the amended income execution within forty-five
days of being delivered to the sheriff, not twenty. The amendment to
subsection (j) relates to priority and provides that if the interest
rate changes while an execution is ongoing, the amended execution shall
retain the priority of the ongoing execution. The amendment to
subsection (k) provides that, if a judgment creditor issues an amended
execution because the applicable interest rate changes, any money
collected in excess of the judgment amount shall be promptly returned to
the judgment debtor.

Section 6 amends section 5222 of the civil practice law and rules. The
amendment to subdivision (a) provides that, if the applicable interest
rate changes while a restraint is in effect, the judgment creditor shall
issue an amended restraining notice, and include the date as of which
the new interest rate applies, without leave of court as otherwise
required under subdivision (c) of the section. The amendment to subdivi-
sion (c) provides that, if the applicable interest rate changes while a
restraint is in effect, the judgment creditor shall issue an amended
restraining notice without leave of court.

Section 7 provides the effective date.

 
JUSTIFICATION:

This legislation intends to remedy the hardship placed on a significant
number of New Yorkers by a statutory judgment interest rate that has
long been incommensurate with market interest rates, and which has been
intensified by the COVID-10 pandemic.

Beginning in the early 2000s, due in part to the proliferation of the
debt-buying industry, plaintiffs began to file debt collection lawsuits
en masse against New Yorkers in unprecedented numbers. Over the past 20
years, millions of consumer debt actions have inundated New York State
courts. These lawsuits are notoriously lacking basic information and are
sometimes filed against the wrong people. Compounding the issue, New
York has experienced widespread and well-documented fraud in service of
process, especially in debt collection cases. Thus, significant numbers
of judgments entered not only were obtained without defendants' know-
ledge, but also were otherwise legally faulty. The legislature finds
that the confluence of these systemic failures disproportionately harm
communities of color, increasing and entrenching racial inequity.

The nine per centum per annum statutory judgment interest rate for judg-
ments against consumers has for too long been incongruent with market
interest rates. The rate has not been amended since 1981 when the aver-
age rate for the one-year United States Treasury bill (i.e., One Year
Treasury Constant Maturity Yield) was over 14 percent. From 2000 to
2020, the average rate was under 2 percent. The nine percent rate
contributes to the growing unpaid judgment amounts entered during the
height of the mass filings of debt collection lawsuits and has resulted
in default judgments throughout the 2000s. It would be unjust and
contrary to public policy to allow interest at this inflated and harsh
rate on unpaid amounts for judgments entered in the past. Moreover, the
nine percent rate is significantly out of step with current interest
rates. The legislature finds that it is in the public interest for judg-
ments in consumer debt collection lawsuits to accrue interest at a flat
rate of two percent, which is consistent with the average interest rates
for the one-year United States Treasury bill over the last twenty years
and which represents a fairer rate for New Yorkers, for unpaid amounts
of judgments entered in the past, and for judgments going forward.

The long-standing need for this change in law has been exacerbated by
the COVID19 pandemic, which has imposed unprecedented financial pressure
on consumers and disproportionately impacted lower- and middle-income
New Yorkers. In March 2020, a record was set for the largest monthly
increase in unemployment in New York state. With little or no income,
many consumers are already unable to pay their bills, including rent,
medical bills, and car loans, or to continue paying consumer debt judg-
ments. Many of the debts stemming from the COVID-19 pandemic will even-
tually be bought by debt collectors who will use extraordinary means to
seek legal judgments. The long-lasting economic effects of these meas-
ures are deeply concerning and it is in the interest of the State to
protect vulnerable New Yorkers from bank levies and wage garnishments to
pay unjustly high interest amounts that originate in State law on judg-
ments for consumer debts. New York state has an opportunity to protect
New Yorkers from further financial hardship - with no financial outlay
by the state - by lowering the interest rate that defendants pay on
consumer judgments and accrued claims.

This legislation intends that the rate of two per centum per annum shall
apply prospectively to consumer debt judgments as of the bill's effec-
tive date; and shall apply retrospectively to consumer debt judgments
entered prior to this bill's effective date that are not yet fully paid
and satisfied as of the effective date. This is a responsive reform to
the aforementioned findings, including the mass filings resulting in
default judgments and the effects of the COVID-19 crisis and its
disproportionate impact on lower- and middle-income communities.

It is recognized that in recent years there have been legislative
proposals to lower the interest rate of all types of judgments.  Howev-
er, analogous to a number of other consumer protections enacted over the
years, the instant narrowly drawn proposal recognizes the peculiarly
pernicious effects upon New Yorkers of burgeoning consumer debt both
past and present.

 
PRIOR LEGISLATIVE HISTORY:
2020: S.7946-B (Thomas) / A.10479 (Weinstein) - Committed to Judiciary

 
FISCAL IMPLICATIONS:

None noted to the State."