## Facts

- A federal export credit agency held over $100 million in debt arising from 13 loans made to, or guaranteed for, three Indonesian pulp-and-paper operating companies; three notes also had a separate parent-company guaranty.
- In 2001, defendants announced a global standstill on repayment, defaulting on the loans.
- After paying private lenders on the guaranteed loans, the agency received assignments of the lenders’ rights and sued for breach of contract and related claims in federal court.
- The district court entered a judgment of roughly $144 million against defendants.
- To collect, the agency obtained FDCPA writs of garnishment directed to two New York banks.
- The banks answered that, as intermediary banks, they were processing electronic fund transfers (EFTs) for which the debtor subsidiaries were originators or intended beneficiaries.
- Defendants objected that, under New York law, EFTs in transit at intermediary banks are not subject to restraint and do not constitute property of the originator or beneficiary while held by an intermediary bank.
- The district court quashed the writs to the extent they restrained EFT credits at intermediary banks.

## Issues

1. Whether an EFT temporarily in the possession of an intermediary bank in New York constitutes “property” in which the judgment debtor (as originator or intended beneficiary) has a garnishable interest under the FDCPA.
2. Whether the FDCPA displaces New York substantive law governing property interests in EFTs processed through intermediary banks.

## Decision

- The Second Circuit affirmed the order quashing the writs as to EFTs held by intermediary banks.
- The court held that EFTs temporarily held by intermediary banks in New York are not garnishable under the FDCPA to satisfy debts of the originator or intended beneficiary.
- Because New York UCC Article 4-A gives neither originator nor beneficiary a property interest in the EFT at an intermediary bank, the debtor lacks the “substantial nonexempt interest” required for FDCPA garnishment.
- The FDCPA was construed as supplying federal collection procedures while generally leaving the definition of property interests to state law; it did not preempt New York’s Article 4-A treatment of intermediary-bank EFTs.

## Legal Principles

- FDCPA garnishment under 28 U.S.C. § 3205 reaches only “property ... in which the debtor has a substantial nonexempt interest,” and the existence of such an interest is generally determined by applicable state property law.
- Under New York’s UCC Article 4-A, a funds transfer is executed through a chain of payment orders; intermediary banks’ duties run to the banks in the transfer chain, not to the originator or beneficiary.
- Under New York law, neither the originator nor the beneficiary has an attachable property interest in an EFT while it is held by an intermediary bank.
- Absent clear congressional direction, the FDCPA does not override state commercial-law rules that define property interests in payment systems.

## Conclusion

The Second Circuit held that FDCPA writs cannot garnish EFT credits at New York intermediary banks because, under New York UCC Article 4-A, judgment debtors as originators or intended beneficiaries have no property interest in EFTs while they are in transit through an intermediary bank, and the FDCPA does not preempt that state-law rule.


Export-Import Bank of the U.S. v. Asia Pulp & Paper Co., 609 F.3d 111 (2d Cir. 2010)