Comerica pressured over handling of government program fraud claims

In 2008, the Treasury Department selected Comerica as its financial agent to distribute monthly benefit payments to roughly 4.5 million veterans and Social Security recipients through the Direct Express prepaid debit card program. The current agreement between the agency and bank is not set to expire until January 2025.

“For most cardholders, this payment is their sole source of income and is essential for basic living needs, such as housing, food, and medicine,” according to the Treasury. Yet, thousands of Direct Express cardholders have reported being robbed of these basic essential needs after being targeted by fraudulent and unauthorized transactions. An investigation spearheaded by Sen. Elizabeth Warren (D-Mass.) in October 2018 described the Direct Express program as “plagued by incidents of criminals impersonating beneficiaries and draining their accounts.”

Alleged violations

Under the Electronic Fund Transfer Act (EFTA) and its implementing Regulation E, banks have 10 business days from the time a consumer reports a dispute to determine whether an error occurred. If the bank needs more time, it may take up to 45 days, provided it issues the customer a provisional credit in the amount of the alleged error while the investigation is ongoing. If an error is discovered, it has one business day to correct it.

Cardholders have the right to receive the results of the investigation. They may also request a copy of all investigative documents the bank used in making its determination.

Regarding Direct Express, Comerica and Conduent Business Services—the third-party vendor that manages Comerica’s call center—engaged in a pattern of conduct that included “sham investigations and improper denial of meritorious claims regarding fraudulent charges and unauthorized uses,” according to a class-action complaint filed in February 2019 in U.S. District Court for the Northern District of Georgia. Fraud victims reported spending hours on hold with customer service and months disputing fraudulent charges only to have their claims denied in many cases.

A July 2019 government audit report into the Direct Express program outlined similar concerns.

“Although Direct Express has maintained an overall customer satisfaction rating of 94 percent or above since 2009, the call center has received poor ratings in some categories, such as customer service representative response times and regulatory compliance related to chargeback and dispute processing,” the audit report stated.

The report further found Comerica failed to alert the Treasury’s Office of Inspector General of all instances of possible federal criminal law violations that occurred, leaving OIG in the dark about the extent of alleged fraud schemes.

Cardholders were left “holding the bag on hundreds, thousands, and even tens of thousands of dollars of fraudulent charges by unauthorized persons,” the complaint alleged, citing language contained in the Direct Express terms of use that should have protected users.

“People were made homeless. People were living in their cars. People couldn’t buy their prescriptions or food. There are some sad stories,” said JB Simms, a plaintiff in the case. Simms said he was one of the luckier ones.

“I didn’t lose anything. I got all my money back from the merchants,” he said. As a private investigator, “I knew how to do it. Other people do not. They become handcuffed.”

Class actions certified

Since the filing of the original 2019 complaint, the judge in that case granted a motion to dismiss the claims of non-Georgia residents due to lack of jurisdiction. A separate action was then filed in September 2019, and an amended class-action complaint was filed in January 2020.

In September, Judge Xavier Rodriguez of the U.S. District Court for the Western District of Texas granted certification of three class actions against Comerica and Conduent.

The class actions represent Direct Express cardholders nationwide and address the following:

• The 13-day deadline class: All Direct Express customers who alleged not being sent the results of an investigation within 13 business days of submitting a notice of error.
• The provisional credit class: All Direct Express customers not given a provisional credit in the amount of the alleged error.
• The investigative documents class: All Direct Express customers who were allegedly not timely provided a copy of investigative documents upon request.

Judge Rodriguez denied approval of a fourth, “breach of contract” class, which concerned alleged refund denials in violation of Direct Express’s terms of use. In his decision, the judge reasoned, in part, the allegations were too case specific to proceed as a class.

Next steps will be to gather the data necessary to assess how many people are potentially in each class, said Franklin Lemond, an attorney at law firm Webb, Klase & Lemond, which serves as co-class counsel for the plaintiffs. From there, those who have been victimized by alleged fraudulent transactions through Direct Express will be given the opportunity to either stay or opt out of the class actions before trial begins.

As per the statute of limitations, “The period of time the case is focusing on is from 2017 until September 2022, when the class was certified,” Lemond said. The OIG in its Direct Express audit report cited apparent Reg E violations occurring as early as February 2015, while the program has received hundreds of complaints filed with the Consumer Financial Protection Bureau (CFPB) and Better Business Bureau dating back to 2015.

Amid the backlash, the Treasury has stuck with Comerica regarding the Direct Express program. Questioned on the matter, a Treasury spokesperson only stated, “Direct Express has the same consumer protections for fraud, loss, and errors that are provided to traditional bank account holders under Regulation E.”

More to come?

In February 2020, Comerica disclosed in a regulatory filing the CFPB was investigating its business practices but did not elaborate beyond that. Asked whether the investigation related to the EFTA and Reg E allegations, Comerica’s Director of Corporate Communications Nicole Hogan said, “We don’t comment on legal or regulatory matters.”

Conduent has remained equally tight-lipped.

“We don’t comment on pending litigation,” said Sean Collins, Conduent’s global head of public relations and external communications. “For questions regarding the Direct Express program, we refer you to Comerica.”

Lemond noted the Treasury is not a party to any of the cases.

“I know some of the named plaintiffs are upset with the Department of Treasury … for awarding this contract to Comerica and for renewing it,” he said. “Those are important issues, no doubt, but they are certainly beyond the scope of our case.”