NEW YORK (Reuters) - Netspend, a provider of reloadable debit cards and payroll cards, will pay about $1.1 million to settle New York state accusations it illegally charged low-income customers exorbitant interest rates on paycheck advances, and let debt collectors seize their funds.

The settlement was announced on Thursday by Letitia James, New York's attorney general.

James said her office found more than 6,900 instances in which Netspend fees on paycheck advances drove New Yorkers' effective annual interest rates above 100%, and more than 4,000 instances when rates topped 300%, dwarfing the state's 16% legal limit for unlicensed lenders.

She said Netspend also froze more than 80 customers' funds and turned them over to debt collectors in violation of a state law shielding Social Security, unemployment and other benefits from collection, up to $3,840 for New York City, Long Island and Westchester County residents and $3,600 for other residents.

Netspend also misled customers about a wide range of other fees, including for using automated teller machines, James said.

The settlement includes $735,670 in restitution, and $357,775 in civil penalties and costs.

Netspend and its Austin, Texas-based parent Ouro Global did not immediately respond to requests for comment.

Founded in 1999, Netspend says it has more than 200 million registered accounts.

Ouro says its business partners include CVS, Walgreens, Dollar General, Family Dollar, Mastercard, Visa and sports teams such as the Miami Heat, the San Antonio Spurs and Real Madrid.