New York’s Attorney General, Letitia James, has announced that a national bank is facing penalties for freezing customers’ accounts and transferring funds to debt collectors. The Office of the Attorney General (OAG) conducted an investigation and found that Pathward Bank, based in South Dakota, illegally sent tens of thousands of dollars from New Yorkers’ accounts to debt collectors and froze the accounts of hundreds of clients over 1,400 times.

The investigation revealed that Pathward violated New York’s Exempt Income Protection Act (EIPA) by freezing accounts belonging to New Yorkers. The EIPA prohibits banks from freezing accounts that contain specific government benefits, such as Social Security benefits, veterans’ benefits, disability insurance, and unemployment insurance, up to a value of $3,425.

Attorney General James stated, “Vulnerable New Yorkers had their bank accounts drained by the very institution they trusted to safeguard their funds. Pathward’s unlawful actions deprived New Yorkers of their hard-earned wages and essential government benefits. My office will ensure that every dollar lost due to Pathward’s illegal actions is refunded to New Yorkers. If any New Yorker suspects unauthorized withdrawals from their bank account, I urge them to contact my office immediately.”

The OAG’s investigation also revealed that Pathward repeatedly violated the EIPA by instructing third-party servicers to freeze accounts and transfer funds to debt collectors. Attorney General James highlighted that many of the frozen accounts had balances below $800, which is well below the wage threshold set by the EIPA.

As part of the settlement, Pathward has agreed to pay $79,664 plus interest to approximately 88 affected New Yorkers and a penalty of $627,000. Attorney General James acknowledged that Pathward cooperated with the investigation and voluntarily took steps to address these illegal practices last year.

Pathward Financial, as of March 2023, had assets totaling $6.868 billion.

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