CFPB probes U.S. Bank over unemployment payments during pandemic

U.S. Bancorp is the latest bank to face an investigation by the Consumer Financial Protection Bureau into the administration of unemployment insurance payments on prepaid debit cards during the pandemic.

The Minneapolis company disclosed the CFPB probe in a securities filing Tuesday. It also said that it is cooperating fully with all pending investigations. A company spokesperson declined Wednesday to provide further comment.

U.S. Bancorp's filing did not specifically mention fraud, but numerous banks have been contending with the consequences of fraud in connection with expanded unemployment insurance payments during the COVID-19 pandemic.

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In March 2020, Congress bolstered the funds available to workers who lost their jobs as a result of the health crisis. During a six-month span in 2020, an estimated 13.8% of the money paid in four states under two temporary pandemic-era unemployment programs went to likely fraudsters, according to a recent audit by the U.S. Department of Labor's inspector general.

In July of this year, Bank of America was fined $225 million by the CFPB and the Office of the Comptroller of the Currency in connection with problems that occurred at the height of the pandemic, particularly in California, where the Charlotte, North Carolina-based bank has the contract to distribute unemployment benefits on prepaid debit cards.

The regulators said that BofA failed to respond to tens of thousands of cardholders who reported unauthorized transactions, and also that the bank blocked thousands of legitimate beneficiaries from accessing their funds.

BofA has mostly pulled out of the government benefits business, and other banks are also retreating amid changes in the economics of the business.

Late last year, KeyCorp decided to stop providing prepaid cards for jobless benefits in Illinois — a decision that contributed to a 24% decline in the company's fee income from cards and payment services during the first quarter.

"Banks are payment processors, and they are being asked to get involved in stopping the fraud," Haywood "Woody" Talcove, the CEO of LexisNexis Special Services, told American Banker earlier this year. "Why would a bank continue to provide a service when they're losing money?"

U.S. Bank, the banking subsidiary of U.S. Bancorp, is one of the largest players in the business of distributing unemployment benefits. Recipients access their funds on a reloadable prepaid debit card from U.S. Bank called ReliaCard.

Since the start of the pandemic, the list of states where the $601 billion-asset bank has held government contracts includes Nebraska, Ohio, Kentucky, Michigan, Iowa, Colorado, Kansas, North Carolina, Utah, Maine, Oregon, Wyoming, Minnesota, Arkansas, Louisiana and Pennsylvania, according to a CFPB database.

Regulation and compliance

BofA fined $225 million for failing to rein in benefits fraud

July 14, 2022 4:13 PM

In July 2020, federal prosecutors in Philadelphia said that law enforcement agencies had prevented $28 million in Pennsylvania pandemic unemployment relief funds from going to fraudsters by either check or direct deposit. The prosecutors also credited U.S. Bank for using applied analytics to identify another $16 million in fraudulent claims.

Fraud in the Keystone State has continued, though. Last November, Pennsylvania Treasurer Stacy Garrity warned that scammers were targeting consumers by inaccurately telling them in text messages that their state-issued U.S. Bank accounts had been temporarily frozen, and encouraging them to click a link and provide more information.

U.S. Bank settled a separate matter with the CFPB in July, agreeing to pay a $37.5 million fine after the bureau found that the bank had inadequate procedures between 2010 and 2016 for preventing and detecting the opening of unauthorized customer accounts.