The Attorney General of New York yesterday announced that a financial institution will pay $700,000 in fines and penalties for illegally freezing customer accounts and sending debt collectors tens of thousands of dollars that should have been protected or exempt from garnishment.
The Who: Pathward Bank, formerly known as MetaBank, is a federally chartered financial institution that issues debit cards, prepaid cards, payroll cards, and gift cards through third-party servicers. The servicers market reloadable cards that are issued by Pathward and Pathward holds onto the funds that are loaded onto the cards.
What Happened: Between 2016 and 2022, Pathward froze 1,400 accounts at the instruction of debt collectors that had obtained judgments and were attempting to seize assets to recover the unpaid debts that were actually covered by New York’s Exempt Income Protection Act, which prohibits freezing consumer bank accounts that include certain government benefits, like Social Security benefits, disability insurance, and unemployment insurance.
- Pathward “repeatedly” instructed the third-party servicers to freeze the accounts and turn over the funds in them to debt collectors.
The Penalty: Pathward will refund $79,664 plus interest to 88 New Yorkers whose funds were illegally turned over to debt collectors. The company will also pay a fine of $627,000 for its illegal and deceptive conduct.
- The AG’s office mentioned that Pathward cooperated with the investigation and voluntarily began to remediate the illegal practices last year. Going forward, Parthward will make those remediations permanent and change its account agreements going forward to more accurately describe consumers’ rights and the company’s legal obligations.
