The Treasury Department on Thursday officially named BNY as financial agent for the Direct Express prepaid-card program that delivers government benefits to roughly 3.4 million Americans, most of whom are unbanked.
The move was expected: Comerica Bank told its investors in July that it had received preliminary notification that Treasury would choose another partner for the program. Days later, American Banker reported BNY would win the contract, citing unnamed sources.
The five-year deal with BNY begins Jan. 3, but Comerica has agreed to extend its services for three years “to allow for the orderly transfer … to the new financial agent," the Dallas-based bank said in a statement Thursday.
Comerica had been Treasury’s partner on Direct Express since 2008 – and had seen its contract renewed twice. But the bank’s execution of the contract landed it in hot water because it allowed a third-party vendor, i2c, to field fraud disputes and handle cardholder data from an office in Lahore, Pakistan, American Banker reported. The Treasury contract had required all Direct Express services be provided in the U.S. or its territories.
Comerica this month sued the Consumer Financial Protection Bureau, arguing the agency’s investigation into the bank’s handling of the Direct Express program is “aggressive and overreaching.”
Through the partnership, BNY stands to gain a liquidity boost worth millions of dollars. Average deposits with Direct Express accounted for $3.4 billion at Comerica in the third quarter, the bank said in an Oct. 28 filing. Card fee income tied to the program was $137 million last year, while outside processing expenses were $138 million, the Dallas bank noted.
"We're honored to be appointed as the financial agent for the Direct Express program, a decision which speaks to BNY's legacy serving clients and communities throughout the financial ecosystem," Jennifer Barker, global head of treasury services and depositary receipts at BNY, said in a statement Thursday. "Drawing on our leading platform capabilities, we look forward to advancing the program's goal of providing high-quality financial services to individuals and communities throughout the U.S."
For its part, Treasury on Thursday said it held a “competitive selection process,” involving proposals from “multiple” financial institutions but “determined that BNY’s expansive suite of features and customer service options will enable an evolution in the Direct Express program by providing enhanced efficiency and services tailored to the program’s customer base.”
Users can access rent and bill payment solutions, virtual cards, cardless ATM access, chat and text customer service, online dispute filing and in-person identity authentication options, among other benefits, Treasury said.
The department expects cardholder transition to be phased for minimal disruption. Customers can expect communication about migration of services no earlier than spring of 2025, Treasury said.
“Since 2008, the Direct Express program has paid federal beneficiaries seamlessly, inclusively, and securely, while sparing taxpayers and customers the costs and risk associated with cashing paper checks,” Tim Gribben, commissioner of the Treasury Department’s Bureau of Fiscal Service, said in a statement Thursday. “This new agreement will further our goals of delivering a modern customer experience and strengthening Treasury’s commitment to paying the right person, in the right amount, at the right time.”
