New York City Debt Collection Defense Attorney

No private right to sue banks under Exempt Income Protection Act

The US District Court for the Southern District has concluded that CPLR Article 52, as amended by the New York Exempt Income Protection Act (EIPA) does not allow for a private right of action by a debtor against a bank when the bank has frozen the debtor's account pursuant to a bank restraint obtained by a third-party creditor.

In the case, a class action titled Cruz v TD Bank, N.A., 10 Civ 8026 (opinion by Hon. P. Kevin Castel), the plaintiff debtors claimed that TD Bank had restrained their accounts and charged them fees in violation of CPLR Article 52, which governs the enforcement and collection of money judgments in New York state courts, as amended in 2008 by the EIPA. The EIPA was designed to provide enhanced protections to debtors, and protect additional types of property and income from restraint, such as Social Security, disability income, and public assistance funds.

Plaintiffs' Claims

The gravamen of the plaintiffs' complaint was TD Bank's failure to send to the debtors various disclosures concerning what funds in plaintiffs' accounts may be exempt, information on how to claim exemptions, or a copy of the restraining notice. EIPA expressly requires banks to send these notices and forms to debtors. The statute also states, however, that the inadvertent failure by a depository institution to provide these documents does not give rise to liability on its part. The court allowed the plaintiffs to file an Amended Complaint alleging that it was TD Bank's general practice to not comply with the statutory requirements of EIPA.

EIPA also requires that these forms be provided to the bank by the third-party creditor, and that a bank may not restrain an account unless it receives the notices and forms from the third-party creditor. A restraint is void if the creditor fails to serve the notices and forms on the bank.

No Private Right of Action Against Banks, Express or Implied

The court concluded, and the plaintiffs conceded, that there is no express provision in the EIPA granting a private right of action against banks. The court rejected the plaintiff's argument that the right exists by negative inference.

The court also found that neither the over-all legislative scheme, legislative intent nor legislative history of the EIPA supported an implied private right of action against banks. A particularly compelling argument in this part of the court's analysis was that the legislature had based EIPA upon a Connecticut statute; much of the Connecticut statute was adopted for New York State's version, but Connecticut's provision allowing private actions against banks was intentionally rejected.

The remedies provided for by statute permit special proceedings for judgment debtors and judgment creditors to sue each other --

CPLR 5225(b) permits a special proceeding by a creditor against a garnishee to retrieve property.

CPLR § 5227 permits a special proceeding by a creditor against any person to pay a debt.

CPLR § 5239 permits a special proceeding against a creditor by any interested person (including the debtor) pre-restraint to dispute a creditor's rights to property.

CPLR § 5240 allows any person to request that a court modify enforcement procedures.

CPLR § 5251 permits a court to hold any person in civil contempt for willfully refusing to obey a restraining notice.

CPLR § 5222-a(d) provides for a judicial hearing between the debtor and creditor if there is a dispute that money is exempt.

CPLR § 5222-a(g) awards the judgment debtor costs, reasonable attorney fees and actual damages if the creditor objects to an exemption claim in bad faith.

The court also denied all of the plaintiffs' common law claims against TD Bank: conversion, breach of fiduciary duty, fraud, unjust enrichment, and negligence.