The fifth-largest commercial bank in the country, U.S. Bank administered prepaid debit cards to distribute unemployment insurance benefits through its ReliaCard program.
But starting in the summer of 2020, when unemployment rose close to 15%, the bank froze tens of thousands of accounts due to suspected fraud. It then failed to provide a reliable method for consumers with frozen cards to regain access to their benefit money, the CFPB said.
As part of the settlement, the bank did not admit or deny wrongdoing.
Between March 2020 and July 2021, states issued $794 billion in combined state and federal unemployment benefits.
The demand for the prepaid cards “grew nearly 4000%,” during the pandemic, Cheryl Leamon, a representative for U.S. Bank, told CNBC.
“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,” Leamon said. The bank has since made enhancements to the ReliaCard program, Leamon added.
Users who had their accounts frozen between August 2020 and March 2021 waited an average of a few weeks to a month or more to regain access to benefits because U.S. Bank did not provide an easy method to verify identities.
The $15 million OCC portion of the fine was related to alleged unfair practices under the Federal Trade Commission Act.
U.S. Bank also violated the Consumer Financial Protection Act and failed to immediately investigate alleged unauthorized electronic fund transfers under the EFT Act, according to the CFPB.
Consumers were unable to access the funds that had been reported as unauthorized, because the bank incorrectly required additional written confirmation about the transactions and did not dispense provisional credits without it.
“U.S. Bank must comply with the law, and the CFPB and OCC are making the bank pay for its conduct,” Chopra said.
Under a consent order, U.S. Bank will provide $5.7 million in redress to consumers and pay a $15 million civil money penalty. The OCC penalty will be paid to the U.S. Treasury.
U.S. Bank is based in Minneapolis, Minnesota, and had $668 billion in assets as of Sept. 30, according to the CFPB.
