NEW YORK–Three New York-based credit unions have won an injunction in a case involving a law passed by the state that reduces the rate of interest that can be charged on certain consumer debt.
As CUToday.info reported, at year-end 2021 New York Gov. Kathy Hochul signed into law S5724, 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%. The law is to take effect April 30, 2022.
But as CUToday.info also reported, three credit unions responded by filing suit in the case Greater Chautauqua FCU, Boulevard FCU, and Greater Niagara FCU v. Hon. Lawrence Marks et al, which can be viewed here.
Now federal district court judge in the Southern District of New York has ruled the three credit unions have successfully established a likelihood of success on their claims that the retroactive application of New York’s recently-passed rate reduction law constitutes a regulatory action taking in violation of the U.S. Constitution and preliminarily enjoined state sheriffs’ offices from enforcing the law, according to Consumer Finance Monitor.
Class Action Filed
The credit unions had filed a federal class
action lawsuit seeking to enjoin the enforcement or implementation of the rate reduction law. Three of the New York county sheriffs’ offices – the named defendants in the lawsuit – initially opposed the preliminary injunction, but reversed their position during a hearing on the motion, noting that they too would benefit (from potential indemnification) should the court issue an injunction and clearly define their obligations under the new law, according to Consumer Finance Monitor,
In response to concerns of the three sheriffs’ offices about uneven application, the court also ordered a copy of the issued preliminary injunction to be served on the sheriffs’ offices of the remaining 59 counties in New York not named directly in the lawsuit, the report added.
“In determining that the preliminary injunction should be granted as to the sheriffs, the court relied on the credit unions’ arguments that retroactive application of the law would violate their property interests by eradicating millions of dollars currently owed by judgment debtors; a regulatory taking the court deemed ‘so onerous that its effect is tantamount to a direct appropriation . . . ‘”
Other Concerns Raised
Consumer Finance Monitor said, “The credit unions also raised concerns about due process violations arising from the law’s silence on how to perform mandated rate recalculations, particularly where some payments have been made.”
The injunction will remain in place while the litigation proceeds unless the court (or an appellate court) decides it is no longer necessary.