Most New Yorkers have never heard of the “champerty loophole,” but it has helped turn our courts into a playground for bad-actor hedge funds known as “vulture funds.” These firms buy up struggling countries’ national debt for cheap, sue them for years, and demand massive payouts with interest, while schools, hospitals, and basic services in these countries fall apart due to lack of funds.
And when countries are pushed deeper into crisis, people leave. Families migrate because they can no longer survive at home. More than 75% of recent asylum seekers come from countries facing serious debt crises and mired in economic instability. These countries spend more than $82 billion every year paying back debt while struggling to provide basic services.
New York is deeply connected to that story because more than half of the world’s sovereign debt bonds are governed under our state laws. When vulture funds want to sue a country in crisis, they do it here.
The playbook is simple. A country falls into an economic crisis and tries to restructure its debt to stabilize its economy and keep basic services running. Most creditors who deal with sovereign debt will settle the debt out of court and take a holistic look at the overall portfolio.
However, vulture funds buy up debt after a country is already in trouble because it is dirt cheap. Then they sue for full repayment plus interest. In many cases, they drag out court fights and hold up recovery efforts just to make more money.
After Argentina’s financial collapse in the early 2000s, most creditors agreed to restructure the debt. A small group of vulture funds refused and spent years suing the country in New York courts. Eventually, those firms secured a $2.4 billion payout on debt they had bought at steep discounts; the initial portfolio value was approximately $500 million. That is not investing. That is exploitation.
For decades, New York had protections against this kind of predatory behavior through its champerty law, which prohibited investors from purchasing debt solely to file lawsuits for profit. But in 2004, lawmakers created an exemption for claims more than $500,000 as a result of aggressive lobbying by vulture funds.
Since then, similar lawsuits have targeted Puerto Rico, Venezuela, Ecuador, Peru, Sri Lanka, Greece, and other countries already facing economic hardship.
The Fix the Champerty Loophole Bill (S1477/A643A) would restore those protections and close the loophole. It does not erase debt or stop legitimate creditors from recovering what they are owed. It specifically targets investors purchasing distressed debt primarily to sue and obstruct restructuring agreements supported by the overwhelming majority of creditors.
The bill would also lower New York’s outdated 9% prejudgment interest rate, which currently rewards vulture funds for dragging litigation. The Champerty Bill would lower it to the 1-year U.S. treasury yield rate, around 3.7%.
The International Monetary Fund said the bill would support more orderly and predictable debt restructuring processes. The Vatican’s Jubilee Report commissioned by Pope Francis specifically called for reforms such as addressing the champerty loophole in New York and the 9% interest rate.
For immigrant communities, this is whether our legal system should help the powerful extract wealth at the expense of ordinary people in crisis. The countries in question are our constituents’ homes; their communities have been impacted by this crisis.
New York leaders are addressing an affordability crisis hurting working families. Debt reform and passing the Champerty Bill must be part of that.
Gonzalez-Rojas is a Queens assemblywoman. Solano is the executive director and co-founder of Churches United For Fair Housing (CUFFH).