Attorney General James Secures More than $700,000 from Pathward Bank for Illegally Freezing Bank Accounts and Turning Over Consumer Funds to Debt Collectors

 

Bank Required to Refund Dozens of New Yorkers in New York City and Pay Penalties

New York Attorney General Letitia James secured more than $700,000 from Pathward, National Association (Pathward), a national bank formerly known as MetaBank, for unlawfully freezing customer accounts and illegally transferring money to debt collectors. An investigation by the Office of the Attorney General (OAG) found that Pathward illegally sent debt collectors tens of thousands of dollars from New Yorkers’ accounts and froze hundreds of customers’ accounts more than 1,400 times. New York law prohibits debt collectors from obtaining funds that include certain government benefits and prevents banks from freezing bank accounts with protected wages. The OAG investigation found that Pathward regularly sent debt collectors funds that were government benefits or that should have been subject to the protected wages threshold. As a result of this agreement, Pathward is required to refund dozens of New Yorkers in the Bronx, Manhattan, Brooklyn, and Queens nearly $80,000 and pay $627,000 in penalties.

“Vulnerable New Yorkers had money taken out of their bank accounts by the very institution they trusted to protect them,” said Attorney General James. “Pathward’s illegal actions deprived New Yorkers of their hard-earned wages and critical government benefits. My office is refunding New Yorkers for every dollar they lost due to Pathward’s illegal actions. If any New Yorker suspects that money is being improperly removed from their bank account, I encourage them to contact my office immediately.”

Pathward is a nationally chartered bank that issues debit cards, prepaid cards, payroll cards, and gift cards, primarily through third-party servicers. These third-party servicers market prepaid reloadable debit cards online or at retail locations, and Pathward issues those cards and holds the funds loaded onto them. An OAG investigation found that from 2016 to 2022, Pathward illegally froze more than 1,400 accounts belonging to New Yorkers in violation of New York’s Exempt Income Protection Act (EIPA). The EIPA prohibits banks from freezing consumer accounts that include certain government benefits, such as Social Security benefits, veterans' benefits, disability insurance, and unemployment insurance, worth up to $3,425. The EIPA also bars banks from freezing bank accounts with protected wages, which is 240 times the state's current minimum wage, meaning $3,840 for residents of New York City, Long Island, and Westchester, and $3,600 for all other New Yorkers.

The OAG investigation found that Pathward repeatedly instructed its third-party servicers to illegally freeze accounts and turn over consumers’ funds to debt collectors, in violation of the EIPA. After 2020, Pathward failed to supervise its third-party servicers, which resulted in hundreds of additional illegal account restraints. For example, in April 2021, a third-party servicer froze a Pathward bank account that had a balance of less than $800, which is several thousand dollars below the wage threshold under EIPA. The consumer could not access their account for a full year. 

Pathward cooperated with OAG’s investigation and voluntarily began to remediate these illegal practices last year. As a result of today’s agreement, Pathward has agreed to make its remediations permanent and to change its account agreements going forward so that they accurately describe consumers’ rights and Pathward’s legal obligations.

In addition, Pathward is refunding $79,664 plus interest to approximately 88 New Yorkers whose funds were illegally turned over to debt collectors. The OAG will contact affected New Yorkers and distribute the refunds.

This agreement also requires Pathward to pay a penalty of $627,000 for its illegal and deceptive conduct. This is the first time that a party has been assessed a penalty in connection with violations of the Exempt Income Protection Act. Today’s penalty is a reminder that banks, debt collectors, and all other parties involved in debt collection in New York must work diligently to satisfy their obligations under the law.

Attorney General James encourages all consumers who have had their bank accounts illegally frozen or had funds illegally turned over to creditors to report it online to OAG’s Consumer Frauds Bureau.