Comerica Bank is suing the Consumer Financial Protection Bureau, alleging that a bureau investigation into the Dallas-based company's administration of a federal prepaid card program is unlawful.
In a lawsuit filed on Nov. 8, Comerica accuses the CFPB of "pursuing an aggressive and overreaching investigation" of the bank's role as the designated financial agent for the Treasury Department's Direct Express program, which provides federal benefits on prepaid cards to more than three million Americans.
Comerica had previously disclosed that it was being investigated by the CFPB. But the lawsuit appears to be the first time the company has said the investigation involves Direct Express.
The bank argues that the CFPB's 3-year-old investigation has "failed to acknowledge" that Comerica "generally acted with the oversight and knowledge or approval of the federal government."
The lawsuit also alleges that the bureau's investigation "exceeds the scope of the CFPB's statutory authority," and it argues that the CFPB's funding structure violates both the Constitution and the Dodd-Frank Act. Comerica says the bureau has repeatedly threatened to bring an enforcement action against the bank for alleged inadequate fraud prevention controls.
In an email Wednesday, a Comerica spokesperson said the $80.2 billion-asset bank has "worked hard to fulfill the obligations" of its Treasury contract and "to administer this complex program" while minimizing disruptions.
"Despite our good faith efforts to provide the critical context, the CFPB has consistently ignored our arguments and documentation and, in our view, stepped beyond its legal and regulatory authority to further its position," the company spokesperson said.
The spokesperson added that Comerica intends to "vigorously defend" itself against potential claims issued by the bureau.
The lawsuit, which was filed in the U.S. District Court for the Northern District of Texas, is the latest development in Comerica's effort to defend itself against claims that it mishandled the lucrative Direct Express program.
Last year, the bank faced allegations that it violated contractual obligations by outsourcing fraud complaints from Direct Express beneficiaries to a vendor in Pakistan. Comerica has also been accused of sharing sensitive consumer data with vendors and failing to reimburse beneficiaries who said their government benefits were stolen.
In June, Comerica agreed to pay $1.2 million to settle a class-action lawsuit that accused the bank of denying refunds to prepaid cardholders who alleged their government benefits were stolen.
A month later, the bank disclosed that it had received a preliminary rejection notification from Treasury in connection with its effort to maintain its role with the Direct Express program. Comerica was first selected as the program's financial agent in 2008 and was later chosen twice more — in 2014 and in 2019.
Comerica's current contract with Treasury is due to expire on Jan. 2, 2025. Last month, the bank said in a quarterly filing that the contract has a potential extension for up to three years to "facilitate an orderly transition." It also said that "under the contract, Treasury will use reasonable efforts to notify the bank by Dec. 3, 2024," of its decision to extend the deal.
"While the length of the transition is currently unknown," Comerica noted in the filing, "the corporation believes it may take some time, given the scale and complexity of the program as well as its own transition experience." The loss of the contract "could be material," the bank added.
The Bank of New York Mellon is expected to take over the contract, sources told American Banker in July. Neither BNY nor Treasury have confirmed that reporting.
Administering the federal prepaid card program is a sizable business for Comerica. Card fee income related to Direct Express totaled $137 million in 2023 and $29 million in the third quarter of 2024.
The consumer bureau began looking into Comerica's handling of the Direct Express contract in 2021 by issuing a civil investigative demand, according to the lawsuit. A civil investigative demand is a type of subpoena that permits federal agencies to request information without going through formal court processes.
In September 2023, the CFPB notified Comerica that it was considering legal action, even as the agency was requesting more information from the bank, the lawsuit alleges. The following month, Comerica "submitted a detailed response" to the CFPB's claims," but in May 2024, the bureau told the bank that it planned to "pursue a public enforcement action against Comerica based on practices that the CFPB alleges are unlawful," according to the suit.
The CFPB declined to comment Wednesday on the lawsuit.
Comerica did not say how much money it expects to spend on legal fees connected to the lawsuit. But it has already "incurred millions of dollars in legal fees defending" itself against the CFPB's investigation, the company said in the lawsuit.
