New York’s Attorney General, Letitia James, has taken action against a national bank for unlawfully freezing customer accounts and transferring funds to debt collectors. The Office of the Attorney General (OAG) conducted an investigation and discovered that Pathward Bank, based in South Dakota, had frozen accounts belonging to New Yorkers on over 1,400 occasions, while also illegally sending tens of thousands of dollars to debt collectors.

The AG found that Pathward violated the state’s Exempt Income Protection Act (EIPA) by freezing accounts that contained government benefits such as Social Security benefits, veterans’ benefits, disability insurance, and unemployment insurance, which can amount to $3,425. Attorney General James stated that the bank’s actions had harmed vulnerable New Yorkers by taking money out of their accounts, depriving them of their hard-earned wages and critical government benefits. She assured affected individuals that her office would refund every dollar lost due to Pathward’s illegal actions and urged anyone suspecting improper removal of funds from their bank account to contact her office immediately.

The OAG’s investigation also revealed that the bank repeatedly violated the EIPA by instructing third-party servicers to freeze accounts and transfer funds to debt collectors. Notably, many of the frozen accounts had balances below $800, significantly lower than the wage threshold set by the EIPA.

In response to the violations, Pathward has agreed to pay $79,664 plus interest to around 88 affected New Yorkers and a penalty of $627,000. Attorney General James acknowledged the bank’s cooperation with the investigation and stated that Pathward had voluntarily taken steps to address these illegal practices since last year.

As of March 2023, Pathward Financial had $6.868 billion in assets.