The nation's fifth-largest commercial bank, US Bank, administered prepaid debit cards through its ReliaCard program to distribute unemployment insurance benefits.
But starting in the summer of 2020, as unemployment rose nearly 15%, the bank suspended tens of thousands of accounts because of suspected fraud. It then failed to provide consumers with blocked cards a reliable method to regain access to their benefit money, the CFPB said.
As part of the settlement, the bank did not admit or deny any wrongdoing.
Between March 2020 and July 2021, states provided a total of $794 billion in state and federal unemployment benefits.
Demand for prepaid cards has “increased nearly 4,000%” during the pandemic, Cheryl Leamon, a representative for U.S. Bank, told CNBC.
“While a small portion of cardholders were affected by the extended suspension, we prevented over $375 million in fraud and returned hundreds of millions of additional funds to states that were transferred to questionable accounts,” Leamon said. The bank has since made improvements to the ReliaCard program, Leamon added.
Users whose accounts were suspended between August 2020 and March 2021 waited, on average, a few weeks to a month or longer to regain access to benefits because US Bank did not offer an easy method for identity verification.
The OCC's portion of the $15 million fine related to alleged unfair practices under the Federal Trade Commission Act.
According to the CFPB, the U.S. bank also violated the Consumer Financial Protection Act and failed to promptly investigate suspected unauthorized electronic fund transfers under the EFT Act.
Consumers were unable to access the funds reported as unauthorized because the bank incorrectly required additional written confirmation of transactions and would not provide provisional credits without it.
“U.S. Bank must follow the law, and the CFPB and OCC are making the bank pay for its behavior,” Chopra said.
As part of a plea agreement, U.S. Bank will award consumers $5.7 million in restitution and pay a civil penalty of $15 million. The OCC penalty will be paid to the U.S. Treasury Department.
US Bank is based in Minneapolis, Minnesota, and had $668 billion in assets as of Sept. 30, according to the CFPB.