U.S. Bank will pay nearly $36 million in connection with customers’ inability to access unemployment benefits during the COVID-19 pandemic, two regulators said Tuesday, announcing separate penalties.
The Consumer Financial Protection Bureau ordered the Minneapolis-based lender to pay $20.7 million over expanded anti-fraud controls that spurred holders of the ReliaCard prepaid card to weather freezes to their benefits. The controls, rolled out in the summer of 2020, forced cardholders to verify their identities to unfreeze their accounts and, in some cases, U.S. Bank failed to provide consumers with provisional credits after they reported unauthorized transfers from their accounts, the bureau said.
“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,” CFPB Director Rohit Chopra said in a statement Tuesday. “U.S. Bank blocked access to accounts and demanded burdensome paperwork in order for consumers to regain access to their frozen benefits.”
U.S. Bank, for its part, defended its actions, noting a 40-fold increase in state-based unemployment benefits in need of distribution at the height of the pandemic.
“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,” a spokesperson for U.S. Bank said Tuesday in a statement seen by American Banker, Reuters and Bloomberg. “This saved taxpayers from significant losses … We remain committed to serving our state agency clients and their customers.”
U.S. Bank had contracts with at least 19 states and Washington, D.C., to deliver unemployment benefits at the start of the pandemic.
The bank flagged in November 2022 that the CFPB was investigating the handling of COVID-era unemployment insurance payments via prepaid debit cards, then noted in February that the bureau was considering an enforcement action.
The CFPB was not alone, though, in leveling a penalty Tuesday against U.S. Bank. The Office of the Comptroller of the Currency separately fined the lender $15 million for what it called “deficient processes for permitting consumers to regain access to their unemployment benefits in a reasonable time frame following account freezes” between August 2020 and at least March 2021. That qualifies as unfair under the Federal Trade Commission Act, the OCC asserted Tuesday.
U.S. Bank is hardly the only large financial institution to see penalties over its disbursement of unemployment benefits during the pandemic. The CFPB and OCC fined Bank of America $225 million over deficiencies in the administration of the Charlotte, North Carolina-based lender’s prepaid card program.
The CFPB accused the bank of implementing a faulty fraud filter that would trigger an account freeze over a “simple set of flags.”
The limited availability of agents at the bank made it difficult for customers to unfreeze their accounts, the CFPB said.
“People were on hold for hours every day for weeks trying to talk to someone at the bank,” the bureau said.
But instead of providing assistance, Bank of America often redirected customers to California’s “overwhelmed state agency,” the CFPB said.
However, “the bank knew the department was stretched and unable to provide services [yet] was essentially redirecting people into a black hole,” the bureau said.
U.S. Bank’s penalty from the CFPB, meanwhile, earmarks $15 million payable to the bureau and another $5.7 million meant to redress harmed consumers.
The bank violated the Consumer Financial Protection Act and the Electronic Fund Transfer Act by failing to “provide consistent, accurate instructions to consumers on how to unfreeze their accounts quickly,” the CFPB said Tuesday. Additionally, it faulted the bank for failing to provide provisional account credits if investigations into reports of unauthorized transfers take more than 10 days.