Today's Trends in Credit Regulation

New York Court Takes another Look at Application of State Usury Laws to Debt Collection
By Justin B. Hosie

On October 26, 2015, the Southern District of New York issued its decision in Llewellyn v. Asset Acceptance, LLC, 2015 U.S. Dist. LEXIS 145437 (S.D.N.Y. Oct. 26, 2015). In Llewellyn, the plaintiff opened a credit card account with an interest rate of 25.99%, incurred charges, and later defaulted on the account. Citibank, the card issuer, charged off the account for lack of payment and sold the debt to Asset, who then retained Monarch Recovery Management, Inc. to collect it. The plaintiff subsequently initiated an action against Asset and Monarch, alleging violations of New York's civil and criminal usury laws and various other federal and state laws.

Though the plaintiff contested the validity and enforceability of the debt, the court ultimately found the debt both valid and enforceable and granted the defendants' motion for summary judgment. While the plaintiff conceded that Citibank was a national bank governed by the National Banking Act, she argued that it failed to conduct non-ministerial actions regarding her account in its "home state" of South Dakota, thus requiring it to apply New York usury laws. Because Citibank failed to apply these laws, the plaintiff reasoned that the debt should be invalidated. The court rejected this argument and indicated that the plaintiff's relied-upon precedent was unpersuasive, as it did not support finding the debt void and unenforceable. Rather, it supported, at most, application of New York's statutorily-prescribed interest rates to the debt. Accordingly, the court held that "notwithstanding the fact that no party in this case is attempting to collect interest from Plaintiff in excess of New York's usury laws... [it] could not declare Plaintiff's debt void and unenforceable on the basis of Citibank, or any party for that matter, charging interest in excess of New York's usury laws."

After finding the debt "valid, due and owing," the court also dispensed with the plaintiff's contention that Asset and Monarch violated New York's usury laws in the course of attempting to collect the debt. The court held that despite "the fact that New York's usury laws do not apply to 'defaulted obligations' or 'interest...charged only on...past due debts,'" Asset only charged the plaintiff 9% interest and Monarch charged her no interest at all, neither of which violated New York's 16% interest rate cap.

Justin B. Hosie is a partner in the Chattanooga, TN office of Hudson Cook, LLP. Justin can be reached at 423-490-7564 or by email at

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