Consumer Finance Litigation

In Garfield v. Ocwen Loan Servicing, LLC, 15-527 (2d Cir. Jan. 4, 2016), the Second Circuit Court of Appeals examined whether a debtor who has been discharged in a bankruptcy can sue in a district court under the Fair Debt Collection Practices Act ("FDCPA"), as opposed to seeking relief in the bankruptcy court. During her bankruptcy, the debtor paid the arrears on her mortgage, and agreed to make monthly payments to forestall foreclosure. After receiving her discharge, the debtor ceased making payments. Within months her arrearage totaled over six thousand dollars. The lender contacted the debtor and demanded payment of over twenty thousand dollars, which reflected both her post discharge arrears and the discharged amounts. The lender also reported on the debtor's credit an arrearage of over twenty thousand dollars. The debtor sued the lender in federal district court under the FDCPA alleging various violations. In the proceedings below, the district court dismissed the debtors complaint, holding that the Bankruptcy Code provided the exclusive remedy for the debtor's claims and that to the extent a remedy existed under the FDCPA, it conflicted with the Bankruptcy Code and was therefore precluded. On appeal, the Second Circuit elucidated the standard for resolving the perceived conflict between the two federal statutes as follows: "When it is claimed that a later enacted statute creates an irreconcilable conflict with an earlier statute, the question is whether the later statute, by implication, has repealed all or, more typically, part of the earlier statute."

The Court observed that repeal by implication is disfavored, and "[i]n the absence of some affirmative showing of an intention to repeal, the only permissible justification for a repeal by implication is when the earlier and later statutes are irreconcilable." In refusing to find an express or implied intention to repeal portions of the FDCPA with the enactment of the Bankruptcy Code, the Court held, "the Bankruptcy Code does not broadly repeal the FDCPA for purposes of FDCPA claims based on conduct that would constitute alleged violations of the discharge injunction. No irreconcilable conflict exists between the post-discharge remedies of the Bankruptcy Code and the FDCPA."

The Court found this to be particularly true in the post-bankruptcy discharge context because the debtor "no longer has the protection of the bankruptcy court." Specifically, the Court held Bankruptcy Code provision governing the discharge injunction, "does not explicitly create a cause of action for its violation, whereas the automatic stay provision provides such a remedy, see id. § 362(k)." Thus, the Court held that the conflict was not only plain enough to require recognition of an implied intent to appeal, but would also deprive the debtor of a remedy under the FDCPA where the Bankruptcy Code provided no corresponding remedy.

With its opinion in Garfield, the Second Circuit joins the Seventh (Randolph v. IMBS, Inc., 368 F.3d 726, 728 (7th Cir. 2004)) and the Third Circuit (Simon v. FIA Card Services, N.A., 732 F.3d 259, 274 (3d Cir. 2013)) in holding that the FDCPA and Bankruptcy Code, although overlapping in certain respects, do no work any kind of express or implied repeal of a debtors right to proceed under the FDCPA.