Comerica Bank faces lawsuit, accused of illegal fees, harming Direct Express cardholders
Susan Tompor
5 min read
Comerica Bank is being accused of deliberately hanging up on customer service calls, charging illegal ATM fees and more allegations involving seniors, the disabled and others who use the Direct Express card for federal benefits.
On Friday, the Consumer Financial Protection Bureau filed a complaint in the U.S. District Court for the Northern District of Texas against Comerica accusing the bank of "systematically failing its 3.4 million Direct Express cardholders — primarily unbanked Americans."
The Dallas-based bank with strong Detroit ties lost its 16-year-old contract with the federal government involving the Direct Express card in November.
In a statement emailed to the Detroit Free Press, Comerica said it will continue to “vigorously defend our record as the financial agent for the Direct Deposit program and remain committed to serving our cardholders.”
Comerica said it has cooperated with the CFPB throughout its investigation by sharing information and data to illustrate the “unique nature of this program and the fact that we operate with the oversight of the Fiscal Service.”
“Despite our good faith efforts to provide this critical context, the CFPB has consistently ignored our arguments and documentation,” Comerica stated.
Comerica said it has worked hard to serve cardholders who use Direct Express and to address any issues in what is a complex program providing federal benefits to 3.4 million cardholders over a one- to two-day period each month.
Comerica stated that on Nov. 8, Comerica filed a lawsuit against the CFPB “challenging the bureau’s regulatory overreach and its handling of this case, which undermined the legitimacy of its own investigation. Today, the CFPB doubled down by filing a countersuit against Comerica Bank.”
On Nov. 21, the Treasury Department's Bureau of the Fiscal Service announced that the Bank of New York Mellon Corp. was selected as the new financial agent for the Direct Express program. The five-year agreement begins Jan. 3. Comerica said then that it entered into a three-year extension of services to allow for an orderly transfer at the request of the Fiscal Service.
The list of concerns raised by the CFPB is substantial, including charges that Comerica "mishandled fraud complaints while providing federal benefits through the Direct Express prepaid debit card program," according to the CFPB.
The watchdog agency also said Comerica's actions included charging illegal ATM fees to more than 1 million cardholders between April 1, 2019, and April 30, 2024.
In its legal filing, the CFPB said that the bank's vendors intentionally terminated "25 million customer-service calls from cardholders who were on hold before the cardholders could speak to a representative." Other cardholders, the CFPB said, "were frequently subjected to excessive wait times to speak with a representative, sometimes up to several hours."
The inadequate customer service created problems for Direct Express cardholders who wanted to dispute unauthorized transfers and bookkeeping errors, according to the CFPB.
The CFPB is asking the court to order Comerica to halt these practices, provide refunds to affected customers, and pay civil penalties that would go to the CFPB's victim relief fund.
“The CFPB is suing Comerica Bank for illegally harming disabled and older Americans who count on Social Security and other federal benefits,” said CFPB Director Rohit Chopra.
“By deliberately disconnecting millions of calls and harvesting illegal junk fees, Comerica boosted its bottom line at the expense of Americans living on a fixed income.”
The U.S. Department of Treasury had contracted exclusively with Comerica has since 2008 to administer the Direct Express program. The card enables people who don't have bank accounts to receive monthly federal benefits through prepaid debit cards. Direct Express currently serves roughly 3.4 million people.
Many people receiving Social Security and other federal benefits use direct deposit into their bank accounts.
The Direct Express card helps people avoid costly check cashing fees and can easily be used to buy groceries, pay bills, and get cash at thousands of locations. The prepaid card is the only method for unbanked consumers to receive certain government benefits, including Social Security benefits.
But more than 1 million Direct Express cardholders ended up paying ATM fees to access government benefits, according to the CFPB charges, in situations where they were legally entitled to free withdrawals.
In addition, the CFPB said, "Comerica led its consumers to agree to waive their consumer protections by requiring cardholders to contact and request merchants to stop pre-authorized payment transfers from their account in situations where the law in fact required the bank to stop the transfers itself."
And some consumers ran into headaches involving fraud.
According to the CFPB, some consumers contacted Comerica alleging they had been fraudulently enrolled into the Direct Express program.
"The bank’s vendors frequently advised the consumers that 'no error occurred' where the bank had determined that there was, in fact, enrollment fraud," the CFPB stated.
A bank is required under federal law to take steps to investigate such errors within a specified timeframe when a customer notifies the bank about an incorrect or possibly fraudulent charge.
The CFPB said its investigation found that Comerica failed to do this more than 20,000 times. "And when they did investigate, they frequently provided vague and confusing findings or blew off customers altogether," according to the CFPB.
Thousands of Direct Express cardholders were forced by the bank's vendors to close their accounts to stop a preauthorized payment, leading to more cash out of pocket for those on limited incomes, the CFPB said.
As a result, seniors and disabled consumers receiving federal benefits had to pay more money in fees to speed up the receipt of a new debit card to regain access to their benefits.
