A judge in the United States District Court for the Southern District of New York ruled late last week that three credit unions had successfully established a likelihood of success on their claims that the retroactive application of the fee reduction law rate recently passed in New York was a regulatory grab in violation of the United States Constitution and previously barred state sheriffs’ offices from enforcing the law.
The credit unions had filed a federal class action lawsuit seeking to enjoin the application or implementation of the Rate Reduction Act that lowered the statutory annual interest rate on consumer debt judgments in New York. from 9% to 2%, and was to go into effect on April 30, 2022. 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 possible compensation) if the court issues an injunction and clearly defines their obligations under the new law. In response to concerns from the three sheriffs’ offices about uneven enforcement, the court also ordered that a copy of the issued preliminary injunction be served on the sheriffs’ offices in the remaining fifty-nine New York counties. do not named directly in the lawsuit.
The only other named defendant — the chief administrative judge of the New York State Courts whose office is apparently responsible for creating the policies and procedures necessary to implement the rate cut law — will not be ordered under the court order. According to the court, the credit unions had not demonstrated that the chief administrative judge had the power or the “willingness to exercise [his] duty” to enforce the rate reduction law, and therefore did not demonstrate a likelihood of success with respect to this state official.
In determining that the preliminary injunction should be granted to the sheriffs, the court relied on the credit unions’ arguments that retroactive application of the law would violate their proprietary interests by removing millions of dollars currently owed by the judgment debtors; a regulatory grab judged by the court “so onerous that its effect amounts to a direct appropriation. . . .” Credit unions have also raised concerns about due process violations resulting from the law’s silence on how to perform mandatory rate recalculations, particularly when certain payments have been made. According to credit unions, the law’s silence on this issue creates significant compliance uncertainty.
The injunction will remain in effect for the duration of the litigation, unless the court (or a court of appeal) decides that it is no longer necessary.