New NY State Law Will Reduce Legal Interest on Consumer Claims

percentage sign to represent Legal Interest on Consumer ClaimsThe legal rate of interest that can be awarded in a money judgment against an individual person is expected to be reduced as New York continues to protect the rights of individuals. The laws of usuary, which specifies the legal rate of interest that can be charged to a consumer is not at issue at this time. What is awaiting the Governor’s signature is the percentage rate of interest that can be included in a money judgment entered against an individual.

Until now, New York never differentiated between individuals and business entities (i.e. corporations, LLCs, LLPs, etc.) when it came to the legal interest that could be imputed or calculated and included in a money judgment. But, as New York continues to issue legislation aimed to increase consumer fairness, it’s starting to distinguish between consumers and corporations. The current legal rate of 9% interest charged to corporate entities will remain unchanged.

BIll #5724A will reduce the rate of interest that can be included in a judgment entered against a natural person in New York from 9% to 2% for claims arising out of consumer debt. Consumer debt defined as an “obligation of any natural person to pay money arising 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.” The change in interest rate will be for judgments entered after the effective date of the law.

If you’ve already recovered a judgment against a natural person which included interest at 9% per annum, don’t worry. The new law will only impact the rate of interest you can charge post-judgment. What if you have a signed agreement wherein the consumer agreed to pay a higher rate of interest than the legal rate offered by New York State? No problem there either. Make sure, when forwarding the case to your collection attorney, you include a copy of the underlying written agreement indicating that the consumer agreed, in writing, to pay the higher rate of interest. Reference can be made to the agreement in the underlying pleadings and papers so that you can recover the higher rate of interest.

So where do the 2% and 9% rates of interest come in? Absent an agreement, the court imputes the interest. Even if you do not have a written agreement, if you supplied goods or services, you are still entitled to the legal rate of interest. For those interested, the text of the bill can be found here.

If you have questions related to an underlying claim, enforcing or vacating a judgment or restraint, contact Frank, Frank, Goldstein & Nager.

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