On September 26, a federal court judge ended a challenge to the constitutionality of New York’s Fair Consumer Judgment Interest Act (“FCJIA”), which retroactively reduced the statutory post-judgment interest rate on consumer debt judgments from 9% to 2%. The basis for the challenge by three New York-based credit unions was that FCJIA amounted to an unconstitutional regulatory taking of their accrued but unpaid judgment interest.
The FCJIA covers uncollected judgments “arising out of a consumer debt” entered prior to April 30, 2022, and judgments “arising out of a consumer debt” entered on or after that date. FCJIA defines a “consumer debt” as “any obligation or alleged 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, whether or not such obligation has been reduced to judgment.” This includes what New York law defines as a “consumer credit transaction.”
The court recognized that while creditors have a property interest in accrued but uncollected post-judgment interest, a legislative reduction—even one that is retroactive—does not automatically constitute a regulatory taking. Creditors cannot rely on constitutional protections to preserve previously accrued interest rates, even if those rates have been stable for decades.
However, the court noted that mere diminution in property value is insufficient to demonstrate a taking. Notably, the court found that the plaintiffs’ businesses were not rendered economically unviable by the reduction in post-judgment interest. Evidence presented at trial showed that the plaintiffs did not rely on the statutory interest rate in making decisions about loan criteria, acceptable credit risk, or investment in collection efforts.
A copy of the court’s decision is available here.
This Member Alert is intended for members of the Receivables Management Association International, is for informational purposes only, and is in no way intended to provide legal advice. Members are encouraged to consult with an attorney of their choice for legal advice concerning this matter.