Comerica says it shares Sen. Elizabeth Warren’s concerns about fraud in the federal program through which the bank provides prepaid cards and electronic benefit payments to veterans and disabled Americans but argues the system is still much safer than the paper checks it replaced.
Warren, a Massachusetts Democrat who began investing the Direct Express program after a constituent complained that Dallas-based Comerica failed to protect a relative’s account and didn’t reimburse the stolen benefits quickly enough, tallied recent fraud complaints and assessed how they were handled in a letter this week to Treasury Secretary Steve Mnuchin.
Mnuchin’s department is in the midst of seeking new bids from contractors to manage Direct Express, which provides Social Security disability and Veterans Affairs benefits to 4.5 million people. Comerica has run the service since 2008, winning two separate six-year awards; it disbursed about $3 billion in Social Security and related benefits to 4.3 million people in September and $90 million to 84,000 veterans and their families as of October.
A particular problem, Warren said, is a feature Comerica introduced in August 2017 allowing Direct Express users who lose their debit cards to have cash from their account wired to a MoneyGram operator, often out of state. While the option was a lifeline to relocating victims of Hurricanes Harvey and Maria, which struck Houston and Puerto Rico, respectively, that year, some 480 cases of fraud totalling about $460,000 were reported over the next 12 months, Warren said.
The lender subsequently began training its agents to ask for additional verification information when Direct Express users sought money transfers, but fraud continued to increase and the program was temporarily suspended, the senator said.
“It is encouraging that Comerica’s reimbursement of fraud victims happened more quickly as the months went by and as the fraud schemes continued, but Direct Express customers rely on their federal benefits — often as their sole source of income — and do not have other bank accounts,” she said. “Any disruption in these payments can have devastating effects on these Americans’ lives.”
Mnuchin should take the investigation’s findings into consideration when considering applications to manage Direct Express starting in 2020 and write a contract that ensures improved fraud protections, Warren said.
Comerica’s own review of the cases indicates there was no data breach at the lender itself and that thieves may have gained access to cardholder information through hacks on merchants.
“We share Sen. Warren’s concerns for Direct Express cardholders affected by fraud and the importance of remaining vigilant in its prevention,” a Comerica spokeswoman said in a statement. “The incidences of fraud in the program are very low when compared with other prepaid card programs.”
Comerica rose 0.4 percent to $73.36 in New York trading on Friday. The shares have climbed 6.8 percent so far this year.
