New York’s Attorney General is penalizing a national bank for freezing its customers’ accounts and handing the funds over to debt collectors.
New York AG Letitia James says an investigation by the Office of the Attorney General (OAG) found that South Dakota-based Pathward Bank illegally sent debt collectors tens of thousands of dollars from New Yorkers’ accounts and froze hundreds of clients’ accounts more than 1,400 times.
According to the AG, Pathward illegally froze accounts belonging to New Yorkers in violation of the state’s Exempt Income Protection Act (EIPA), which bans banks from freezing accounts that include certain government benefits like Social Security benefits, veterans’ benefits, disability insurance, and unemployment insurance, worth up to $3,425.
Says the Attorney General,
“Vulnerable New Yorkers had money taken out of their bank accounts by the very institution they trusted to protect them… 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.”
The OAG’s investigation also determined that the bank repeatedly violated the EIPA after instructing its third-party servicers to freeze accounts and transfer their funds to debt collectors.
Attorney General James notes that many of the accounts frozen had balances under $800, which is several thousand below the wage threshold under the EIPA.
Pathward has agreed to pay $79,664 plus interest to around 88 New Yorkers effected by the violations, and also pay a penalty of $627,000.
James says Pathward cooperated with the investigation and “voluntarily began to remediate these illegal practices last year.”
Pathward Financial had $6.868 billion in assets as of March 2023.
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Author: Alex Richardson
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