Comerica Inc.’s CMA subsidiary, Comerica Bank was sued by the Consumer Financial Protection Bureau (“CFPB”) over systematically mistreating its 3.4 million Direct Express cardholders, primarily unbanked Americans receiving federal benefits.
CFPB director Rohit Chopra stated, “The CFPB is suing Comerica Bank for illegally harming disabled and older Americans who count on Social Security and other federal benefits.” “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,” he added.
CMA’s Direct Express Program
Since 2008, the Department of Treasury has contracted with Comerica Bank to administer the Direct Express program, which allows federal beneficiaries to receive their monthly benefits payments through prepaid debit cards. Direct Express currently serves roughly 3.4 million Americans.
Millions of Americans, who are elderly, disabled or otherwise, benefit from Social Security and other federal aids receive through the Direct Express service. Recipients frequently receive their money to the account of their choosing. Beneficiaries can use the Direct Express prepaid card for gas, groceries and other costs.
The prepaid card program has been administered by Comerica Bank under a contract with the Department of the Treasury since 2008. Direct Express serves millions of Americans, many of whom are unbanked, and Comerica is responsible for providing customer care.
CFPB’s Allegations Over CMA
Per CFPB, the bank intentionally disconnected 24 million customer service calls before these could reach a representative. Customers whose calls were not dropped were routinely forced to endure excessively long wait times, often above several hours, to speak with a representative to get support with unauthorized transactions, charge disputes and lost or stolen cards.
More than a million Direct Express cardholders were charged ATM fees when they could legally withdraw government benefits for free.
The bank also allegedly misled fraud victims as bank vendors would tell them that “no error occurred” even if it had determined there was enrollment fraud. In addition, when the bank was legally obligated to halt the transfer itself, Comerica had mandated that its clients get in touch with merchants and ask them to halt pre-authorized payment transfers from their accounts.
The CFPB's investigation also revealed Comerica failed to investigate incorrect charges within specified timeframes, providing vague findings or causing confusion to customers more than 20,000 times. CMA also allegedly required thousands of cardholders to close their accounts to stop a preauthorized payment, which resulted in additional fees to regain access to government benefits.
CFPB’s Action on CMA
The CFPB can take action against companies that violate consumer financial protection rules, such as by participating in unfair, dishonest or abusive conduct and practices, under the Consumer Financial Protection Act.
In this case, the CFPB aims to prohibit Comerica's illegal actions, compensate borrowers who have been affected and impose a civil money penalty that will be deposited into the CFPB's victims’ relief fund.
CMA’s Zacks Rank and Price Performance
In the past six months, CMA’s shares have gained 50.9% compared with the industry’s growth of 36.9%.
Image Source: Zacks Investment Research
CMA currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Litigations Faced by Other Finance Firms
This September, The Toronto-Dominion Bank’s TD U.S. broker-dealer unit, TD Securities USA, agreed to pay more than $20 million in a settlement with U.S. authorities over allegations of manipulations of the U.S. Treasuries market.TD will pay a criminal penalty of $12.5 million to settle civil investigations by the SEC and the Financial Industry Regulatory Authority.
Additionally, a criminal fine of roughly $9.5 million has been levied on TD as per the agreement. Further, the bank has committed to pay $4.7 million to compensate victims and $1.4 million in forfeiture.
Similarly, Wells Fargo & Company WFC has been accused of underpaying interest to clients participating in its cash sweep program.
The plaintiff, Darren Cobb, alleged that WFC breached its fiduciary duty, violated principles of fair dealing and committed breach of contract and unjust enrichment. The lawsuit alleged that WFC didn't pay enough interest on uninvested cash while making a significant profit from these funds, leading to substantial financial loss for its clients.
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