U.S. Bancorp signals CFPB has turned up heat in prepaid cards probe

Daniel Acker/Bloomberg

The Consumer Financial Protection Bureau is weighing an enforcement action against U.S. Bancorp after launching an investigation of its management of prepaid cards for unemployment benefits, according to a securities filing by the company.

The Minneapolis company, which disclosed the CFPB's investigation late last year, said in a filing Monday that the agency is now "considering a potential enforcement action" and that U.S. Bancorp is cooperating fully with all pending examinations. The CFPB probe centers on unemployment benefits disbursed during the pandemic.

A spokesperson for U.S. Bancorp, the parent company of U.S. Bank, declined to comment beyond the public filing.

Banks that work with state governments to administer unemployment insurance programs have faced a series of problems since the start of the COVID-19 pandemic. Though details of the U.S. Bancorp probe are not publicly available, other banks have faced fraud-related concerns due in part to expanded benefits during the pandemic.

Nearly 14% of funds in pandemic-related unemployment benefits in four states likely went to fraudsters, according to a U.S. Department of Labor inspector general audit issued last year.  Several banks work with states to issue prepaid cards to unemployment insurance beneficiaries, but elevated fraud has contributed to some banks reevaluating those programs.

For example, Cleveland-based KeyCorp has stopped issuing prepaid cards for Illinois' unemployment insurance program, a decision that led to a slide in its fee income at the start of last year.

Also last year, federal regulators fined Bank of America $225 million for errors in distributing unemployment benefits and other government assistance in a dozen states, and for wrongfully freezing consumer accounts.

U.S. Bank's ReliaCard offers access to unemployment insurance benefits in states such as Pennsylvania, Kentucky, Nebraska, Ohio, Iowa and Kansas, according to a CFPB database.

The company's securities filing on Monday also disclosed a separate inquiry by the Securities and Exchange Commission into digital communications at U.S. Bancorp's broker-dealer and registered investment advisor subsidiaries.

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That probe mirrors the SEC's scrutiny of Wall Street banks whose employees used WhatsApp or other unauthorized messaging platforms to communicate. Those practices, which regulators say violated recordkeeping requirements for financial firms, led to $1.8 billion of penalties last year against eleven firms.

In its filing, U.S. Bancorp said the SEC's request for information is "part of an industrywide inquiry," and that the agency sought information "concerning compliance with record-retention requirements relating to electronic business communications."

Wells Fargo, which was not among the 11 banks that were fined last year, disclosed similar investigations by the SEC and Commodity Futures Trading Commission in a recent securities filing.