Individuals should be able to sue banks to enforce the state law protecting wages and exempt benefits.
The New York legislature unanimously passed the Exempt Income Protection Act (EIPA) in 2008. The law prevents banks from turning certain funds over to creditors, in order not to leave people completely destitute, unable to buy food, medicine or pay their rent. It protects the first $1,740 from any source, including wages, and exempts $2,625 of federal and state benefits directly deposited into bank accounts. Exempt funds include Social Security and Supplemental Security Income, Veterans benefits, unemployment insurance benefits, pensions, public assistance and child support. The law also prohibits banks from charging fees against protected income.
Individuals who allege their funds were garnished in violation of the law sued TD Bank and Capital One. The federal district court dismissed the claims, finding that there is no “private right of action” for an individual to enforce the law. The individuals appealed.
AARP Foundation Litigation attorneys filed AARP’s friend-of-the-court briefs in conjunction with other organizations working on behalf of low-income New Yorkers, asking the appeals court to allow the individuals to pursue their claims. The brief explains that the EIPA closed a loophole that permitted banks to seize exempt funds, which had put the onus on account holders to demonstrate that the account contained exempt funds, which is difficult to do without an attorney, which debtors by definition will have difficulty hiring. Many elderly, disabled and low-income account holders permanently lost access to their bank accounts and the exempt funds they contained. Others who managed to follow the procedures to claim an exemption nevertheless suffered grievous hardship during the weeks while their claims were resolved. During this time, account holders had no money for rent, food, medicine, utilities, transportation, etc.
Even after obtaining release of their accounts, low-income, elderly and disabled New Yorkers lost hundreds of dollars to garnishment, overdraft, and bounced check fees. The impact on low-income New Yorkers was devastating. It put families in peril of eviction, hunger, illness, and loss of utilities.
In 2008 the legislature closed the loophole by putting the onus on banks to determine that the funds are not exempt before seizing them and charging fees. AARP’s brief demonstrates that contrary to the lower court decision, individuals have a private right of action to enforce the essential protections provided by the EIPA.
Citing arguments presented in AARP's brief, the federal appeals court considering the case asked the New York State Court of Appeals (the state's highest court) to decide whether the state EIPA is enforceable through a private right of action. Federal courts certify questions to the state's highest court, as they did here, when it is not clear how a state court would interpret its own statute.
What’s at Stake
The seizure of exempt funds and wages has a devastating and disproportionate impact on low income older people. Federally exempt benefits and pensions, including Social Security, are often the only source of income for many older people. When a bank seizes an account in response to a garnishment order, the person is left with no money for food, medicine, or rent. On top of that banks typically charge hundreds of dollars for freezing or garnishing accounts.
Cruz v. TD Bank and Martinez v. Capital One are before the U.S. Court of Appeals for the Second Circuit, which has certified the issue on whether there is a private right of action to enforce the EIPA to the New York Court of Appeals.