Texas judge denies CFPB motion to stay Comerica lawsuit

Bloomberg News

A Texas judge denied the Consumer Financial Protection Bureau's effort to pause a lawsuit against Comerica Bank, ruling that the bureau failed to explain how a stay in litigation "would be in the interest of justice."

On Monday, Judge Jane J. Boyle of the U.S. District Court for the Northern District of Texas said there is "a fair possibility" that staying the case would harm Comerica Bank, a subsidiary of Comerica Inc. The CFPB's lawsuit, she said, involves serious allegations that "harm Comerica's reputation every day this lawsuit proceeds."

The Comerica lawsuit is a holdover from the Biden administration. Former CFPB Director Rohit Chopra filed the suit in December, part of a flurry of actions before the changeover in administrations. The CFPB accused Comerica of deliberately disconnecting millions of customer service calls, charging illegal ATM fees and mishandling fraud complaints connected to its management of the Treasury Department's Direct Express public benefits debit card program.

The judge's denial of a stay is yet another setback for acting CFPB Director Russell Vought and Chief Legal Officer Mark Paoletta, who have dismissed nearly a dozen lawsuits. Both officials also hold the top jobs at the Office of Management and Budget and have sought to dismantle the bureau. But the legality of those actions to shutter the agency are being challenged in a separate court case accusing the Trump administration of illegally seeking a purge of CFPB employees. 

Boyle wrote in the two-page order: "The Court is not convinced that it would be in the interest of justice to allow a plaintiff to pause proceedings — three months after filing suit — for the sole purpose of deciding whether to continue pursuing litigation." 

"Because there is a fair possibility that staying the case will harm Comerica, the CFPB must identify some hardship or inequity from being required to continue
litigating this case," she wrote. "The CFPB has failed to do so."

Payments

BNY gains Treasury's Direct Express benefits contract

November 21, 2024 1:08 PM

Comerica opposed the CFPB's request for a stay, claiming the case would "prolong the reputational harm [Comerica] suffers from the pending lawsuit." Comerica also argued that a pause would give the CFPB an "unfair advantage" of an additional four months to prepare a response to the bank's prior motion to dismiss the case.

Comerica's violations with Direct Express led the Treasury Department in November to select BNY to take over the lucrative Direct Express contract, which brings in roughly $3 billion in deposits a month.

Comerica officials privately acknowledged significant compliance failures in their operation of the Direct Express program, which provides federal benefits to 3.4 million people on prepaid cards. Direct Express cardholders get their benefits on prepaid cards in lieu of a direct deposit for customers who prefer a debit card or who do not have bank accounts.

In 2023, American Banker published an article based on internal documents that found a Comerica executive admitted that the Dallas bank faced a "serious contract violation" for allowing fraud disputes and data on Direct Express cardholders to be handled out of a vendor's office in Lahore, Pakistan. 

Personally identifiable information on veterans, Social Security and disability recipients were routinely shared and handled by i2c Inc., a vendor based in Redwood City, Calif., with an office in Lahore, Pakistan — and Comerica officials acknowledged internally that the bank was in violation of the government contract. Treasury Department contracts typically state that all services provided "shall be performed in the United States or its territories."