BILL NUMBER: S7946                 Revised 5/18/20

SPONSOR: THOMAS
 
TITLE OF BILL:

An act to amend the civil practice law and rules, in relation to the
rate of interest charged on money judgments arising out of consumer
credit transactions

 
PURPOSE OR GENERAL IDEA OF BILL:

To limit interest rates on judgments for consumer debt.

 
SUMMARY OF PROVISIONS:

Section one amends the civil practice law by capping the interest rate
on judgments arising from consumer debt at the one year US Treasury bill
rate. Consumer debt means any obligation of a natural person to pay
money. The Office of Court Administration (OCA) is responsible for
calculating and publishing the weekly rate on the last day of each week.
The rate of interest, as concerns judgments on consumer debt, shall be
              

capped at three percent.

Section two provides the effective date.

 
JUSTIFICATION:

Under existing law, judgment interest rates are set at 9%. In some
instances, interest penalties can exceed the underlying award. The liti-
gation process can take months and sometimes years to be resolved,
requiring consumers to pay interest on judgments throughout the process.
This rate was set in 1981 when 9% was two-thirds of the federal rate and
at a time where less court volume allowed for a quicker appeal process.
Today, federal interest rates are below 2%.  There has been a growing
body of evidence showing that consumer debt, which is exacerbated by
high interest payments, is increasing. A 2013 study of recent results of
the Survey of Consumer Finances, which is undertaken by the Federal
Reserve every three years, confirms this finding. Consumer debt that
leads to "debt poverty" is also growing.  These trends hurt all New
Yorkers, as increases in poverty hinder the economy and harm the social
fabric of our society.

The long-standing need for this change in law has been exacerbated by
the COVID-19 pandemic, which has imposed unprecedented financial pres-
sure on consumers. In March 2020, a record was set for the largest
monthly increase in unemployment in New York State. Job losses will
undoubtedly continue as businesses remain closed. With little or no
income, many consumers are already unable to pay their bills, including
rent payments, medical bills, and car loans. Many of these debts will
eventually be bought by debt collectors who will use extraordinary means
to seek legal judgments. 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 consumer debtors pay on
judgments and accrued claims.

Debt poverty is being exacerbated by the caseloads and delays inherent
in New York's court system. As a result, this bill caps interest rates
on judgments at the one year US treasury bill rate, which is a common
financial indicator. And while that rate is currently about 1.3%, it
tends to fluctuate. Enacting this legislation will cut down on consumer
debt and debt poverty, which will in turn improve the lives of all New
Yorkers, regardless of situation.

Consumer credit transactions do not cover all forms of debt. New York
courts have interpreted "consumer credit transaction" to include only
those debts incurred through transactions "wherein credit is extended."
That definition excludes rent arrears, medical bills, and college
tuition. The term "consumer debt" used here comes from the definition of
"debt" in the Fair Debt Collection Practices Act (FDCPA) and would
include consumer credit transactions as well as the other debts
mentioned above. In order for the bill to offer the intended scope of
relief it is very important to ensure these types of debt are included.
The interest rate cap contained here will prevent consumers from poten-
tially paying more than 3% due to unforeseen fluctuations in the treas-
ury market.

The Office of Court Administration will publish the interest rate each
calendar week to ensure consistency, mitigate any risk of miscalcu-
lation, and forestall additional conflict between the parties. This
approach is adopted by 24 of the 27 states that use a variable pre- and
post-judgment interest rate.

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 numerous other consumer protections enacted over the
years, the instant narrowly drawn proposal recognizes the peculiarly
pernicious effects - upon consumers - of burgeoning consumer debt. Thus,
this bill should not be seen as any indication that the interest rate
for non-consumer debt should be lowered as well. In the instance of
non-consumer debt, the interest rate should remain in order to encourage
payment of these debts, as well as to penalize non-payment.

 
PRIOR LEGISLATIVE HISTORY:

New bill.

 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:

None.

 
EFFECTIVE DATE:
This act shall take effect immediately.

                                
 
BILL NUMBER: S7946A

SPONSOR: THOMAS
 
TITLE OF BILL:

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

 
PURPOSE OR GENERAL IDEA OF BILL:

To cap interest rates on judgements for consumer credit transactions.

 
SUMMARY OF PROVISIONS:

Section one amends the civil practice law by capping the interest rate
on judgements arising from consumer debt at the one year US Treasury
bill rate. Consumer debt means any obligation of a natural person to pay
money Office of Court Administration (OCA) is responsible for calculat-
ing and publishing the weekly rate on the last day of each week. The
rate of interest can never be greater than three percent.

              

Section two provides the effective date.

 
JUSTIFICATION:

In New York, civil defendants are required to pay interest on the
original court determination until an appellate court determination is
made. Under state law, judgement interest rates are set at 9%. In some
instances, interest penalties can exceed the underlying award.  This
appeals process can take months and sometimes years to be resolved,
requiring consumers to pay interest on judgements throughout the proc-
ess. This rate was set in the 1970's when 9% matched the federal rate
and at a time where less court volume allowed for a quicker appeal proc-
ess. Today, federal interest rates are below 2%.

There has been a growing body of evidence showing that consumer debt,
which is exasperated by high interest payments, is increasing. A 2013
study of recent results of the Survey of Consumer Finances, which is
undertaken by the Federal Reserve every three years, confirms this find-
ing. Consumer debt that leads to "debt poverty" is also growing.  These
trends hurt all New Yorkers, as increases in poverty hinder the economy
and harm the social fabric of our society.

Debt poverty is being perpetuated by New York's judicial system. This
bill caps interest rates on judgements at the one year US treasury bill
rate, which is a common financial indicator. And while that rate is
currently about 1.3%, it tends to fluctuate. Enacting this legislation
will cut down on consumer debt and debt poverty, which will in turn
improve the lives of all New Yorkers, regardless of situation.

 
PURPOSE OF AMENDMENT:

Consumer credit transactions do not cover all forms of debt. New York
courts have interpreted "consumer credit transaction" to include only
those debts incurred through transactions "wherein credit is extended."
That definition excludes rent arrears, medical bills, and college
tuition. The term "consumer debt," comes from the definition of "debt"
in the Fair Debt Collection Practices Act (FDCPA) and would include
consumer credit transactions as well as the other debts mentioned above.
In order for the bill to offer the intended scope of relief it is very
important to ensure these types of debt are included.

The interest rate cap will prevent consumers from potentially paying
more than 9% due to unforeseen fluctuations in the treasury market.

The Office of Court Administration will publish the interest rate each
calendar week to ensure consistency, mitigate any risk of miscalcu-
lation, and forestall additional conflict between the parties. This
approach is adopted by 24 of the 27 states that use a variable pre- and
post-judgment interest rate.

 
PRIOR LEGISLATIVE HISTORY:

New bill.

 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:

No costs to state or local governments.

 
EFFECTIVE DATE:
This act shall take effect immediately.