Comerica Bank or a different bank tasked with managing a government prepaid benefits program in the future should have to lose compensation for customer service blunders, according to a watchdog report.
The recent findings suggest Comerica could face more consequences over how the Texas bank handled fraud cases last year tied to the Direct Express program, which allows beneficiaries to access benefits payments through prepaid cards.
With the Treasury Department's Bureau of Fiscal Service set to decide soon whether Comerica will keep the Direct Express contract, Treasury's Office of the Inspector General released a report saying the bank's past compensation should have been cut for poor customer service. Now the bureau should strengthen oversight, the IG said.
"As Treasury’s financial agent, Comerica is acting as a fiduciary of the Government and as such should be encouraged to further the administration’s agenda related to customer service, including compliance with Regulation E," the report said.
The IG is recommending that future contracts tie compensation more directly to improved customer service metrics and compliance with consumer protection law. Direct Express serves 4.5 million Social seniors, veterans and others who get federal benefits.
Several fraud victims
“Improving the customer experience and compliance with Regulation E will increase the public trust in Direct Express and Fiscal Service,” the report said. “As part of our audit, we plan to review Comerica’s compliance with the Regulation E cardholder protections including the reimbursement of Direct Express cardholders’ stolen benefits, including related fees.”
The report, which was addressed to Bureau of Fiscal Service Commissioner Timothy E. Gribben, was released as Comerica's contract is up for renewal. The bureau plans to announce the next Direct Express agent later this summer.
Last August, the $70.6 billion-asset Comerica said it had shut down a service allowing cardholders to withdraw funds if they lost their card — even when they were away from their home state. Comerica acknowledged that fraudsters had exploited security flaws in its Cardless Benefit Access Service. The bank said one employee of Conduent, the outsourced call center operator for Direct Express, had been fired as a result of the fraud.
The IG report showed for the first time that Comerica and Conduent received poor ratings for several activities including customer service response times and compliance with regulations related to chargeback, dispute processing and dispute resolution. Direct Express uses monthly scorecards with "service level requirements."
The OIG reviewed monthly performance scorecards from early 2015 to 2018 and found that “Comerica’s compensation was never reduced despite poor ratings in some categories.”
"In our review of the 47 Direct Express SLR Monthly Scorecards, we noted 4 SLRs related to customer service representative response times, representing a total of 188 Final Ratings. Comerica/Conduent received the lowest possible Final Rating in 79 out of 188 instances, or 42 percent of the ratings," the report said.
Further, the report, which was released on July 29, found that the scoring system grouped Comerica's performance results in a manner where higher scores for certain activities offset lower scores for other activities, essentially skewing the results.
"We believe the commingling of all SLR scores does not provide an incentive or disincentive to achieve a high standard in all areas, including chargeback and dispute processing and customer service representative response times," the report said.
At one point, the report takes the bureau's management to task for inaccurately claiming that Comerica had met certain target performance goals 100% of the time.
Comerica won the first government contract to oversee Direct Express, in 2008. The contract was renewed in 2014 despite criticism by the Treasury OIG in prior audits over how the program was being run.
"We believe that under this financial agent selection process, the SLR and target performance for the various activities need to be reviewed and revised with an emphasis on providing better customer service related to the call center and compliance with regulations related to chargeback and dispute processing," the report said.
Comerica declined to comment. Conduent, a Florsham Park, N.J., conglomerate that operates many federal benefits programs, did not respond to a request for comment.
Beneficiaries who were defrauded of funds said they were surprised that the report did not explain how — or even if — Comerica and Conduent were investigating and combating fraud.
“They should be investigating the fraud that is occurring in the call centers,” said Jackie Densmore, a caregiver for her brother-in-law, Derek Densmore, a disabled Marine in Bourne, Mass., His $814 in disability payments got routed last year by fraudsters to a Walmart in Hollywood, Fla. "Fraud still continues and more victims have come forward,” Jackie Densmore said.
She also faulted Comerica, the Bureau of Fiscal Service, and other government agencies including the Social Security Administration and the Department of Veterans Affairs, for urging beneficiaries to sign up for the prepaid debit cards while failing to explain that they could still receive paper checks as an alternative.
Because of privacy issues, Comerica cannot provide information to Treasury's inspector general or the Bureau of Fiscal Service on individual fraud cases. The Bureau of Fiscal Service only receives aggregate fraud data on Direct Express. The OIG said in the report that it did not have the data necessary to conduct an audit or investigation.
Instead, the OIG said it had created an authorization form that when signed by a cardholder will allow Comerica to disclose information “for the purposes of identifying and tracking unauthorized and/or fraudulent uses.”
The IG report made three recommendations. First, compensation for the next Direct Express agent must be tied to performance metrics to ensure that the company is “incentivized to provide excellent service.”
Second, the Bureau of Fiscal Service must request access to Reg E compliance reviews conducted by other banking regulators and use the reviews to improve oversight and the performance of the program.
Finally, the OIG said the bureau should coordinate with the agent on developing regular reports "on potential violations of federal criminal laws, including internal and external fraud relating to Direct Express."
In a letter to the OIG, Gribben agreed with all three recommendations.
"Since the inception of Direct Express in 2008, customer service and fraud protection have been a top priority," he said in the July 16 letter. "We work closely with the Direct Express financial agent and federal agencies to quickly address customer service challenges for cardholders who rely on the program to receive critical payments."
Under the government's agreement with the Direct Express agent, Treasury's IG must be notified "of any instance of a possible violation of federal criminal laws regarding fraud, conflict of interest, bribery, or illegal gratuities."
The OIG report disputed an interpretation by Bureau of Fiscal Service staff that that agreement with Comerica applies only to "insider crimes such as fraud, bribery or embezzlement by Comerica employees or its subcontractors." The OIG said the agreement “does not distinguish between internal and external violations."
The OIG also said that it had verified only four corrective actions taken by the Bureau of Fiscal Service out of 14 total recommendations made in past reports in 2014 and 2017 on Comerica and the Direct Express program. It is unclear whether the bureau is still working on the 10 outstanding recommendations.
“This is all about fraud and how cardholders are treated so poorly when they report a fraud, and how the fraud has not been investigated,” Densmore said. “They are validating that they have a problem, but corrections haven’t happened and there have been no repercussions for Comerica or Conduent.”
