What Are The Procedural Requirements For My Company In New York To Obtain A Judgment In A Consumer Credit Transaction Lawsuit?

This article explains what legal requirements a business creditor in New York must comply with to get a money judgment against a consumer debtor in a lawsuit arising out of a consumer credit transaction, including:

• Particulars that the company must allege in its complaint against the consumer.
• The definition of a consumer credit transaction.
• The period of time within which the business must bring its lawsuit against the consumer.
• Additional, written notices that the company must give to the consumer about the company’s lawsuit.
• The interest rate applicable to money judgments for consumer debt in New York.

For your company to obtain a judgment in a consumer credit transaction lawsuit in New York, it must meet various procedural requirements. Many of these requirements became law on May 7, 2022, the effective date of the New York Consumer Credit Fairness Act (the “Consumer Credit Fairness Act,” the “Act,” or the “NY CCFA”) that, on November 8, 2021, Governor Kathy Hochul signed into law.

The NY CCFA aims to safeguard consumers from abusive debt collection practices. The Act mandates that creditors furnish debtors with detailed information about (i) debts that are the subject of legal proceedings and (ii) avenues available to debtors to defend against debt collection lawsuits.

What Facts Must My Company In New York Allege In Its Complaint Arising Out Of A Consumer Credit Transaction?

As per the Consumer Credit Fairness Act, in every lawsuit arising out of a consumer credit transaction, which is brought against a purchaser, borrower or debtor, a copy of the contract or other written instrument on which the lawsuit is based must be attached to the complaint.

Further, the NY CCFA requires that the complaint in every lawsuit, arising out of a consumer credit transaction, which is brought against a purchaser, borrower or debtor include particulars such as:

• The name of the original creditor;
• The last four digits of the account number that appear on the most recent monthly statement recording a purchase transaction, last payment or balance transfer;
• The date and amount of the last payment;
• An itemization of the amount being sought, by (i) principal, (ii) finance charge or charges, (iii) fees imposed by the original creditor, (iv) collection costs, (v) attorney’s fees, (vi) interest, and (vii) any other fees and charges;
• The account balance that appears on the most recent monthly statement recording a purchase transaction, last payment or balance transfer;
• Whether the plaintiff (that is, the corporate creditor who is initiating the lawsuit) is the original creditor; and
• If the plaintiff is not the original creditor, details about the sale or assignment of the debt.

What Is A Consumer Credit Transaction?

For purposes of the Consumer Credit Fairness Act, a ” ʹconsumer credit transactionʹ ” means a transaction in which credit is extended to an individual and the money, property, or service which is the subject of the transaction is primarily for personal, family or household purposes.

Within What Period Of Time Must My Business In New York Bring Its Lawsuit Arising Out Of A Consumer Credit Transaction?

The NY CCFA shortens, from six years to three years, the statute of limitations on lawsuits, arising out of consumer credit transactions, which are brought against purchasers, borrowers or debtors.

The Consumer Credit Fairness Act specifies that once the three-year statute of limitations has expired, neither subsequent payment toward, nor written or oral affirmation of, the debt revives the debt.

The NY CCFA authorizes defendants (that is, individual creditors against whom the lawsuits are brought) to raise improper service of process as a defense, even if the defendant did not timely raise that defense in a motion to dismiss.

What Additional, Written Notices Must My Company In New York Give To The Defendant Consumer In My Company’s Lawsuit Arising Out Of A Consumer Credit Transaction?

So, too, under the NY CCFA, in a lawsuit rising out of a consumer credit transaction, the plaintiff (that is, the corporate creditor who is bringing the lawsuit), after it files proof of service, on the defendant individual, of the summons and complaint, must submit to the clerk of the court (i) an additional, written notice addressed to the defendant individual and containing, in both English and Spanish, specified language, and (ii) a stamped, unsealed envelope addressed to the defendant individual.

The required text of this additional, written notice addressed to the defendant individual states, among other things, “Attention: a lawsuit has been filed against you claiming that you owe money for an unpaid consumer debt. You may wish to contact an attorney.”

The clerk of the court must promptly mail, to the defendant individual, the above-mentioned, additional written notice.

If the additional, written notice is returned to the court as undeliverable, then no default judgment based on the defendant individual’s failure to answer may be entered.

Again, when a corporate creditor moves for summary judgment against a consumer defendant in the creditor’s lawsuit to collect a debt arising out of a consumer credit transaction, the corporate creditor, at the time it serve its summary judgment motion, must submit to the clerk of the court (i) an additional, written notice addressed to the defendant individual and containing, in both English and Spanish, specified language, and (ii) a stamped, unsealed envelope addressed to the defendant individual.

The required text of this additional, written notice about the corporate creditor’s summary judgment motion, among other things, gives detailed instructions to the defendant individual on opposing the corporate creditor’s summary judgment motion.

The clerk of the court must promptly mail, to the defendant individual, the above-mentioned, additional written notice about the corporate creditor’s motion for summary judgment.

Similarly, in any lawsuit arising out of a consumer credit transaction in which the plaintiff is not the original creditor, the NY CCFA imposes stringent requirements on applications by the plaintiff for a default judgment. The purpose of these exacting requirements is to prevent the entry of default judgments on consumer credit transaction claims that lack merit.

Specifically, in any lawsuit arising out of a consumer credit transaction in which the plaintiff is not the original creditor, any application by the plaintiff for summary judgment must include:

• an affidavit by the original creditor of the facts constituting the debt;
• for each subsequent assignment or sale of the debt to another entity, an affidavit of sale of the debt; and
• an affidavit of a witness of the plaintiff, which includes a chain of title of the debt.

Further, in consumer credit transaction lawsuits, the NY CCFA mandates that any application by the corporate creditor, to the clerk of the court, for a default judgment include an affidavit by the corporate creditor’s representative or attorney stating that after reasonable inquiry, he or she has reason to believe that the statute of limitations has not expired.

Likewise, the NY CCFA sets rigorous requirements for corporate creditors who apply to the New York state courts to enter judgments confirming arbitration awards that are based on a consumer credit transaction.

Specifically, a corporate creditor seeking to confirm an arbitration award based on a consumer credit transaction must plead the actual terms and conditions of the agreement to arbitrate. The corporate creditor must attach, to its petition asking the court to confirm the arbitration award:

• the agreement to arbitrate;
• the demand for arbitration, with proof of service; and
• the arbitration award, with proof of service.

The corporate creditor must also provide, to the court, details of how the arbitrator calculated the award.

What Interest Rate Applies To Money Judgments For Consumer Debt In New York?

In addition to the NY CCFA, amendments to the New York Civil Practice Law and Rules, effective April 30, 2022, lowered the interest rate applicable to money judgments for consumer debt. The amendments essentially reduce, from 9% to 2%, the annual rate of interest for money judgments entered against an individual in consumer debt cases.

For purposes of these amendments to the applicable interest rate, ” ʹconsumer debtʹ ” means 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.

If your company wants to bring, or needs a lawyer to defend it in, business litigation and you are located in the New York City metro area, call New York City Business Litigation Attorney David S. Rich at (201) 740-2828.