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Court Finds No Implied Private Right of Action to Enforce State Law

Individuals whose wages and exempt funds are garnished by banks in violation of state law should be able to protect themselves by suing the bank, argued AARP. New York’s highest court did not agree.


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 Capitol One in federal district court. The 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, urging the court to find that banks can be sued for damages when they seize exempt funds in violation of the law. The brief explained that that the EIPA closed a loophole that permitted banks to seize exempt funds and put the onus on accountholders to demonstrate that the account contained exempt funds. That procedure for claiming an exemption was difficult to navigate without an attorney (and debtors by definition will have trouble finding attorneys). Many elderly, disabled and low-income accountholders permanently lost access to their bank accounts and the exempt funds they contained, and in addition lost hundreds of dollars to the banks’ garnishment, overdraft, and bounced check fees. Those able to  follow the procedures to claim an exemption nevertheless suffered grievous hardship during the weeks while their claims were resolved. During this time, accountholders had no money for rent, food, medicine, utilities, transportation, etc. 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 preventing banks from seizing funds in an account unless the judgment creditor served the bank with required exemption claim forms for the bank to mail to the account holder if any funds are seized. The claim forms make it quicker and easier for the account holders to show their funds are exempt and should not be seized. It also prevents the bank from charging fees if the income is exempt. AARP’s brief demonstrates that contrary to the federal district 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 N.Y. Court of Appeals (the state’s highest court) to decide whether the EIPA is enforceable through a private right of action against a bank. 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.

The state’s top court disagreed with AARP’s argument and construed the law narrowly, finding that there is no implied private right of action under EIPA or common law. The court held, however, that the regular procedures available for a person to claim an exemption include an opportunity to raise claims against banks that violate the law.

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.

Case Status

Cruz v. TD Bank and Martinez v. Capital One are before the U.S. Court of Appeals for the Second Circuit, which had certified the issue on whether there is a private right of action to enforce the EIPA to the N.Y. Court of Appeals.