Comerica is under scrutiny for its handling of government programme fraud charges

For years, Comerica Bank has been accused of mishandling fraudulent transactions in violation of federal banking laws in the United States. A series of class-action lawsuits filed against the bank that were recently certified by a federal district court judge shed light on the alleged flaws.

Comerica was chosen by the Treasury Department in 2008 as its financial agent to transmit monthly benefit payments to about 4.5 million veterans and Social Security claimants via the Direct Express prepaid debit card programme. The present contract between the agency and the bank does not 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 infractions

Banks have 10 business days from the time a consumer reports a dispute to investigate if an error occurred under the Electronic Fund Transfer Act (EFTA) and its implementing Regulation E. If the bank need longer time, it may take up to 45 days, provided that a temporary credit in the amount of the alleged error is issued to the customer while the inquiry is underway. If an error is found, it has one business day to fix it.

Cardholders have the right to receive the investigation's findings. They may also obtain a copy of any investigation papers used by the bank in reaching its decision.

In the case of Direct Express, Comerica and Conduent Business Services—the third-party vendor that manages Comerica's call center—engaged in a pattern of behaviour that included "sham investigations and improper denial of meritorious claims regarding fraudulent charges and unauthorised uses," according to a class-action complaint filed in February 2019 in the United States District Court for the Northern District of Georgia. Fraud victims reported waiting on hold for hours and months to dispute bogus charges, only to have their claims refused in many cases.

Similar problems were raised in a July 2019 government audit report on the Direct Express programme.

“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 study also discovered that Comerica neglected to notify the Treasury's Office of Inspector General of all instances of probable federal criminal law breaches, leaving the OIG in the dark about the scope of alleged fraud schemes.

The complaint claimed that cardholders were left "holding the bag on hundreds, thousands, and even tens of thousands of dollars of fraudulent charges by unauthorised persons," citing language in the Direct Express terms of service that should have safeguarded consumers.

“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 have been certified.

Since the original 2019 complaint was filed, the judge in that case approved a move to dismiss non-Georgia residents' claims for lack of jurisdiction. In September 2019, a separate case was filed, then in January 2020, an updated class-action complaint was filed.

Judge Xavier Rodriguez of the United States District Court for the Western District of Texas certified three class actions against Comerica and Conduent in September.

The class actions include Direct Express cardholders across the country and address the following issues:

• All Direct Express customers who claimed they did not receive the results of an investigation within 13 business days of submitting a report of error were included in the 13-day deadline class.

• All Direct Express clients who were not issued a provisional credit in the amount of the alleged error fall into this category.

• The investigative documents class includes all Direct Express customers who were allegedly not given with a copy of investigative documents upon request in a timely manner.

Judge Rodriguez refused clearance of a fourth class, "breach of contract," involving alleged reimbursement denials in violation of Direct Express's terms of service. The judge reasoned in his conclusion that the claims were too case specific to continue as a class.

The next step will be to collect the data needed to determine how many people are potentially in each class, according to Franklin Lemond, an attorney with the legal firm Webb, Klase & Lemond, which is co-class counsel for the plaintiffs. Following that, those who have been harmed by allegedly fraudulent Direct Express transactions will be given the option to remain in or opt out of the class actions before the trial begins.

"The period of time the complaint is focusing on is from 2017 through September 2022, when the class was certified," Lemond said, citing the statute of limitations. The OIG noted apparent Reg E violations as early as February 2015 in its Direct Express audit report, while the programme has received hundreds of complaints filed with the Consumer Financial Protection Bureau (CFPB) and Better Business Bureau dating back to 2015.

Despite the reaction, the Treasury has decided to continue working with Comerica on the Direct Express programme. When asked about it, a Treasury representative merely said, "Direct Express has the same consumer safeguards for fraud, loss, and errors that traditional bank account holders receive under Regulation E."

Will there be more?

Comerica acknowledged in a regulatory filing in February 2020 that the CFPB was examining its business practises, but provided no further details. When asked if the inquiry was related to the EFTA and Reg E charges, Nicole Hogan, Comerica's Director of Corporate Communications, responded, "We don't comment on legal or regulatory concerns."

Conduent has kept silent as well.

“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 stated that the Treasury is not involved in any of the instances.

“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.”

By fLEXI tEAM