U.S. Bank ordered to pay $36 million for COVID-era benefits issues

Bloomberg News

WASHINGTON — Banking agencies ordered U.S. Bank to pay a total of $36 million for violations related to the bank’s prepaid card program to distribute unemployment benefits during the COVID-19 pandemic. 

The Consumer Financial Protection Bureau ordered that U.S. Bank pay $21 million, including a $15 million penalty and $5.7 million to consumers. Separately, the Office of the Comptroller of the Currency issued a $15 million civil money penalty against the bank. 

The orders relate to U.S. Bank’s “ReliaCard” program, which issued prepaid debit cards to consumers in 19 states and the District of Columbia, to receive unemployment benefits. In the summer of 2020, U.S. Bank rolled out new and expanded freeze criteria for these cards, resulting in tens of thousands of eligible cardholders losing access to their benefits, according to the agencies. 

The bank, in a statement to American Banker, said that its ReliaCard prepaid debit card program grew nearly 4,000% during the COVID-19 pandemic. During that time, the bank worked to combat fraud in the program — a major problem in many COVID-19 era relief programs, including expanded unemployment insurance. 

“In the face of these unprecedented times, the bank stepped up to enable the government to provide assistance to those in need during the pandemic and worked to identify and combat fraud,” a U.S. Bank spokesperson said in a statement. “While a small portion of cardholders were affected due to extended holds, we prevented fraud of over $375 million and returned to the states hundreds of millions in additional funds sent to questionable accounts.” 

The spokesperson said that its efforts “saved taxpayers from significant losses.”

“The bank is proud of the enhancements it has made to the ReliaCard program since the inception of the pandemic,” the spokesperson said. “We remain committed to serving our state agency clients and their customers.” 

This is the second major enforcement action related to prepaid debit cards issued for COVID-19 era unemployment benefits. Last year, the CFPB and OCC fined Bank of America $225 million for failing to rein in benefits fraud, as well as unlawfully freezing consumer accounts. Bank of America, since the COVID-19 pandemic, has mostly pulled out of the government benefits disbursement business. 

U.S. Bank earlier this year disclosed in a securities filing that the CFPB was probing its government benefits business. 

In the order issued on Tuesday, the CFPB said that U.S. Bank engaged in unfair actions or practices by failing to provide those cardholders enough of an avenue to verify their identities and use their benefits. The bureau also said that U.S. Bank violated the Electronic Transfer Act by not investigating cardholders’ notices of error related to allegedly unauthorized electronic fund transfers. 

“At a time when unemployment was close to 15%, many out-of-work Americans throughout the country had little choice but to rely on U.S. Bank for their unemployment benefits. U.S. Bank blocked access to accounts and demanded burdensome paperwork in order for consumers to regain access to their frozen benefits,” said CFPB Director Rohit Chopra in a statement. “U.S. Bank must comply with the law, and the CFPB and OCC are making the bank pay for its conduct.”

The OCC’s order is for unfair practices in violation of the Federal Trade Commission Act. Between August 2020 and at least March 2021, the OCC said that U.S. Bank had “deficient” processes for consumers to regain access to their unemployment benefits within a reasonable time frame.