1-25-22 New York Lowers Interest Rate on Consumer Judgments to 2%
Beginning April 30, 2022, New York State is slashing the rate of interest on consumer judgments from 9% to 2%. This change will provide relief for many individuals with consumer debts and will cause headaches for lenders and their attorneys, who will have to adjust their accounting systems to reflect the new rate and to separately account for judgments on commercial debts, which remain at 9%.
In New York, a creditor is allowed to charge interest on judgments that have been entered. This interest is sometimes referred to as the "legal rate" or the "judgment rate" as opposed to the interest rate set forth in the parties' agreement, known as the "contract rate." In the past, interest accrued on all judgments in New York, whether based on commercial debts or consumer debts, at the rate of 9%. That rate had been in place since 1981, when it was increased from 6% to 9%, and it remained unchanged for the next 41 years.
The dramatic reduction to 2% is limited to consumer debts, where the defendant is a natural person and where the debt arises from a transaction where the money, property, insurance or services which are the subject of the transaction are primarily for personal, family or household purposes. This rate reduction is not only applicable to new consumer judgments entered after April 30, 2022, but it is also applicable to any existing unpaid consumer judgment balances still due after that date. For those existing consumer judgments, interest on the unpaid balance must be computed at the reduced rate of 2%, beginning on April 30, 2022.
For the text of the statute, which was signed into law by Governor Hochul on December 31, 2021, see https://www.nysenate.gov/legislation/bills/2021/s5724/amendment/a , Laws of 2021, Ch 831, § 1, and New York Civil Practice Law and Rules § 5004.
For more information on this law and its effect, please contact John K. McAndrew, Esq., Woods Oviatt Gilman LLP, at jmcandrew@wooodsoviatt.com.
