CFPB Continuing U.S. Bank Unemployment Card Investigation


U.S. Bank announced earlier this week in a filing that the Consumer Financial Protection Bureau is stepping up its ongoing investigation into the bank’s prepaid unemployment card program. This is the latest in a series of CFPB investigations into several banking providers of prepaid cards for unemployment benefits. Polo Rocha writes further on the U.S. Bank inquiry in American Banker:

“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.”

While full details of the CFPB unemployment card investigation into U.S. Bank are not clear, the precedent with other banks highlights the push by regulators to increase oversight on service related to unemployment programs. Bank of America incurred at $225 million fine split between the CFPB and the Office of the Comptroller of Currency in July. BOA was cited for freezing accounts for likely fraud, when in fact no fraud had occurred. Fraud detection, while a critical step to ensure government funds are spent correctly, remains a difficult process. While the prepaid card products provide important and necessary convenience for unemployment recipients, especially those in underbanked or underserved communities, the process to rectify issues as a customer service opportunity can be burdensome. This process is analogous to the increased scrutiny for P2P Fraud that banks are also dealing with which my colleague Suzanne Sando predicts in Javelin’s will increase in the coming year, forcing financial institutions to create improved processes.

Prepaid cards to provide unemployment benefits have been a positive revenue source for banks providing programs but the marketplace remains volatile. However the oversight necessary, likely combined with the drop in claims could create a gap in the marketplace. KeyCorp recently announced that it was ceasing to offer unemployment cards, despite the potential loss of revenue. While not directly attributed to the current U.S. Bank investigation, the State of Pennsylvania recently dropped the U.S. Bank product in favor of Money Network. These changes come in the face of a steady state market place, with small anticipated growth as discussed in my recent report, 2023 Prepaid Card Data Book: 11 Essential Metrics, which projects Government programs, inclusive of both open and closed-loop products, to rise at a 3 % growth rate through 2026.

Overview by Jordan Hirschfield, Director of the Prepaid Advisory Service at Javelin Strategy and Research.


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