In April, following an investigation by Attorney General Leticia James’ office, Pathward (formerly known as MetaBank) was required to refund money to account holders after unlawfully sending frozen deposits to creditors. In addition to refunding the monies, the bank also had to pay penalties for the unlawful freezing of the bank accounts.
Between 2016 and 2022, Pathward wrongfully froze 1,400 bank accounts belonging to New Yorkers. The bank violated state laws preventing banks from freezing accounts with certain government benefits like Social Security, unemployment, disability payments, and balances up to (as of April 2024) $3,425. The laws also prohibit banks from freezing accounts with protected wages, a set amount based on minimum wage. The depositors should have had access to the deposits in their accounts. Pathward ignored these rules and froze people’s accounts anyway.
New York allows judgment creditors to restrain bank accounts belonging to judgment debtors once a judgment is entered. However, these restraints should not have been honored as the funds on deposit were “exempt.” Turning over exempt funds to a judgment creditor or their agent is unlawful. (The courts also maintain a list of exempt funds.) As a result of the bank’s improper and illegal behavior, the NY attorney general took action against the bank.
According to the attorney general’s investigation, the bank instructed companies it partnered with to illegally freeze accounts and hand over customers’ money to debt collectors trying to collect on unpaid debts. The attorney general’s office and Pathward ultimately reached an agreement. The bank agreed to return approximately $80,000 to 88 New Yorkers who had their money “wrongfully” taken. In addition to the refund, Pathward agreed to pay $627,000 in penalties for the unlawful freezing of bank accounts.
Attorney General Leticia James is an advocate for underserved, under-represented consumers, protecting disadvantaged consumers targeted by unscrupulous lenders and creditors. According to James, this case 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.” Anyone who has had their account illegally frozen or funds turned over improperly should report it to the Consumer Frauds Bureau immediately.
For those who have their bank accounts wrongfully restrained, relief may be available without state intervention. If you think your account was wrongfully frozen, contact Frank, Frank, Goldstein and Nager for a consultation.
