Comerica Bank He told investors on Friday The department received preliminary notice from the Treasury Department that it will likely select a different banking partner for its “Direct Express” prepaid card program, which distributes government benefits to about 4.5 million Americans who do not have bank accounts.
Comerica said on Friday that deposits through the program averaged $3.3 billion in the second quarter. The bank likely won’t feel the impact of the deal’s cancellation until next year; the partnership is set to end in early 2025.
“Contract negotiations are not yet finalized, so the process remains fluid,” Comerica CFO Jim Herzog told analysts on the bank’s earnings call on Friday. American bankerBut he added that “we do not currently expect Comerica Bank to continue in business for the long term.”
According to American Banker sources, the Treasury Department’s new partner is BNY — However, the bank declined to comment and authorities did not respond to questions on the matter.
Such a move would boost BNY’s profile as a provider of services to the unbanked. The bank said last year Financial Empowerment Fintech Mochafi It delivers payments from federal, state and local governments, as well as corporate clients, to unbanked and underbanked individuals through the Vaia platform.
Comerica is taking the noble path amid potential losses.
“We see this as an opportunity to refocus and prioritize resources on a targeted deposit strategy that is more aligned with our core relationship operating model,” Herzog told analysts on Friday, according to American Banker.
It would be easy for Comerica to take its partnership with Direct Express for granted. The bank has had a contract with the Treasury Department since 2008, and is on board for renewals in 2014 and 2020. And the money is good: In its disclosures, the bank said it had $29 million in noninterest income from card fees in the second quarter. For all of 2023, that figure is $137 million.
But the bank “Material breach of contract“ Documents reviewed by American Banker last year showed the company allowed a third-party vendor to handle fraud disputes at its office in Lahore, Pakistan.
The contract with the Treasury Department stipulates that all services provided will be “performed within the United States or its territories,” the publication noted.
Comerica’s vendor in the case, i2c, is based in California but also has an office in Lahore, and personal data of veterans, Social Security recipients and disability recipients was shared with the company, the Journal reported, citing bank executives.
Of course, Comerica wouldn’t be the first bank to come under fire over its third-party partnerships (just ask the numerous banking-as-a-service providers that the Federal Deposit Insurance Corporation and the Federal Reserve have slammed this year).
In addition, Comerica shareholders last year They sued Herzog and the bank’s CEO.Curtis Farmer, It alleges that the executives made materially false and misleading statements about their oversight of Direct Express. Program. Comerica last month The bank has agreed to settle a class action lawsuit alleging it refused to refund Direct Express cardholders.
Comerica said in a statement Friday:[s] We will continue to support our customers during the transition period and prioritise our efforts to grow deposits.”
