Dive Brief:
- The Consumer Financial Protection Bureau (CFPB) is investigating U.S. Bank over its handling of unemployment insurance payments using prepaid debit cards during the COVID-19 pandemic, the Minneapolis-based bank disclosed in a securities filing on Tuesday.
- The bank said it is cooperating with the bureau regarding pending examinations, adding the investigation and any subsequent settlements could result in fines, penalties, restitution or alterations in the company’s business practices.
- The bank, which declined Banking Dive’s request to comment on the investigation, is the latest lender to face regulatory scrutiny over its administration of pandemic benefits through prepaid debit cards. The Office of the Comptroller of the Currency (OCC) and the CFPB fined Bank of America $225 million in July over the bank’s handling of unemployment insurance and benefits payments during the pandemic.
Dive Insight:
Under the CARES Act, Congress used banks to funnel pandemic-related aid to small businesses and individuals impacted by widespread lockdowns.
Firms like U.S. Bank and Bank of America partnered with state agencies to dole out expanded unemployment insurance benefits during the pandemic, but the programs became targets for fraud, according to a September report by the U.S. Department of Labor's office of the inspector general.
The OIG found “historic levels of improper payments” regarding the distribution of the unemployment-related benefits in four states in 2020.
An estimated $30.4 billion of the $71.7 billion in pandemic unemployment programs issued in four states during a six month period that year were paid improperly (42.4%), while an estimated $9.9 billion of that was paid to fraudsters (13.8%), the report found.
In the case of Bank of America, the Charlotte, North Carolina-based firm’s effort to tamp down fraud went too far, according to the CFPB.
“Bank of America automatically and unlawfully froze people’s accounts with a faulty fraud detection program, and then gave them little recourse when there was, in fact, no fraud,” the CFPB, which handed the bank a $100 million fine, said in a statement in July.
U.S. Bank declined to comment on whether the CFPB’s investigation of its own program was related to fraud prevention efforts.
