BNY gains Treasury's Direct Express benefits contract

Bloomberg News

UPDATE: This article includes Comerica's comment about receiving an extension of service and background about Comerica's lawsuit against the Consumer Financial Protection Bureau.

The Treasury Department has named Bank of New York Mellon to take over the lucrative contract previously held by Comerica Bank to operate the Direct Express debit card program serving government beneficiaries.

The decision had been expected.

With the contract, BNY gains a free liquidity source of more than $3 billion in deposits a month. The nation's oldest bank has been making a push into faster payments and laying the groundwork to expand payments to the underbanked.

The agreement is for five years, beginning Jan. 3, the Treasury said in a press release. Comerica will continue to service existing cardholders until those cardholders register for a new account with BNY.

Comerica said in a separate release that it has agreed to a three-year extension of its services to allow for the orderly transfer to BNY.

The Treasury's Bureau of the Fiscal Service evaluated proposals from several financial institutions and determined that BNY would be able to provide services tailored to Direct Express' users, the Treasury said.

"With the new financial agent, customers will enjoy rent and other bill payment solutions, virtual cards, cardless ATM access, chat and text customer service, online dispute filing, in-person identity authentication options, and more," the Treasury said. The program will offer other benefits, such as the ability to sign up for a checking account.

BNY will also provide emergency access to funds as an option, the bank said in a separate press release.

Mastercard will serve as the program's payment network, a role it has played since Direct Express' inception in 2008, BNY said. Additional providers include Mobility Capital Finance, or MoCaFi, a Black-founded fintech platform that BNY formed an alliance with last year to provide payments through BNY's Vaia platform. Vaia allows governments and corporate users to send disaster relief, financial aid and employee payroll payments to consumers who are underbanked.  

The Direct Express program serves about 3.4 million Americans, most of whom do not have a bank account, the Treasury said. Those enrolled in the program are issued prepaid debit cards to receive their monthly federal benefits.

An estimated 4.2% of U.S. households were unbanked in 2023, meaning they did not have a checking or savings account at a bank or credit union, according to the Federal Deposit Insurance Corp. That's down from 4.5% of households classified as unbanked in 2021. 

"Drawing on our leading platform capabilities, we look forward to advancing the program's goal of providing high-quality financial services to individuals and communities throughout the U.S.," said Jennifer Barker, global head of treasury services and depositary receipts at BNY. 

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In July, Comerica said it had received preliminary notification that the Treasury would not renew the bank's Direct Express contract. The $80.2 billion-asset Texas bank first won the contract in 2008, and it was renewed in 2014 and 2020. The contract expires in 2025.

Comerica said in its third-quarter earnings report that it received about $137 million in card fees and had $138 million in direct expenses from the program for the fiscal year to date.

The bank had a tough time operating the program. It faced allegations that it had shared sensitive consumer data with vendors and failed to reimburse government beneficiaries who claimed their benefits had been stolen due to fraud. 

Comerica is also being probed by the Consumer Financial Protection Bureau in connection with its administration of Direct Express. The bank has filed a lawsuit against the CFPB, accusing the agency of "pursuing an aggressive and overreaching investigation."

Allissa Kline contributed to this article.