CFPB Action Against U.S. Bank Over Pandemic Prepaid Cards

During the COVID-19 pandemic, prepaid debit cards became a critical way for states to deliver unemployment insurance benefits. One of the largest providers of these cards was U.S. Bank National Association, through its ReliaCard program. In December 2023, the Consumer Financial Protection Bureau (CFPB) issued a consent order against U.S. Bank for unlawful practices tied to this program, requiring millions of dollars in consumer redress and civil penalties.

This article explains what happened, why regulators intervened, what laws were involved, and what this case means for affected consumers and the broader prepaid card market.

Background: U.S. Bank’s Role in Delivering Unemployment Benefits

At the onset of the pandemic in 2020, the sudden spike in job losses led many states to rely heavily on prepaid debit cards to distribute unemployment benefits quickly at scale. U.S. Bank entered into contracts with at least 19 states and the District of Columbia to provide ReliaCard prepaid debit cards to eligible unemployment insurance recipients.

• ReliaCards functioned like standard prepaid debit cards, loaded with state unemployment benefits.
• Recipients could withdraw cash at ATMs, make purchases, and check balances electronically.
• For many consumers, especially those without easy access to traditional bank accounts, these cards became their primary or only means of accessing unemployment funds.

As unemployment surged and fraud attempts against public benefits increased nationwide, U.S. Bank implemented aggressive fraud-prevention measures. According to the CFPB, some of these measures unlawfully restricted access to funds for tens of thousands of legitimate cardholders.

Key Events Leading to the Enforcement Action

The CFPB’s order focuses on the period starting in the summer of 2020, when U.S. Bank revised its internal criteria for freezing card accounts due to suspected fraud.

• Summer 2020: U.S. Bank adopted expanded freeze criteria for ReliaCard accounts receiving unemployment benefits.
• Account Freezes: Tens of thousands of cardholders had their prepaid unemployment accounts frozen for extended periods while the bank evaluated potential fraud.
• Identity Verification Barriers: Consumers were required to verify their identity to unfreeze accounts but were not given adequate or reliable methods to do so, according to the CFPB.
• Unauthorized Transfer Complaints: Many consumers reported potentially unauthorized electronic fund transfers on their cards. The CFPB found that the bank failed to timely investigate these error notices or provide provisional credits as required by law.

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By December 19, 2023, the CFPB had concluded its investigation and issued a formal order, finding violations of federal consumer financial protection laws and imposing monetary and conduct remedies.

Legal Framework: Laws and Regulations at Issue

The enforcement action against U.S. Bank primarily involved two key federal consumer protection regimes.

Consumer Financial Protection Act (CFPA)

The CFPB found that U.S. Bank engaged in unfair acts or practices under the Consumer Financial Protection Act of 2010.

• An act or practice is “unfair” under the CFPA if it causes or is likely to cause substantial injury to consumers, the injury is not reasonably avoidable, and the harm is not outweighed by countervailing benefits.
• In this matter, the CFPB concluded that freezing benefits and failing to provide reasonable means to restore access caused substantial financial harm to consumers who depended on those benefits for basic living expenses.

Electronic Fund Transfer Act and Regulation E

The CFPB also determined that the bank violated the Electronic Fund Transfer Act (EFTA) and its implementing Regulation E.

• Under EFTA and Regulation E, financial institutions must promptly investigate consumer reports of unauthorized electronic fund transfers and, when applicable, provide provisional credits while investigations are ongoing.
• The CFPB found that U.S. Bank failed to timely investigate many notices of error and did not provide provisional credits in numerous cases, depriving consumers of access to disputed funds during the review period.

What Regulators Found U.S. Bank Did Wrong

Based on the CFPB order and related materials, regulators identified several categories of misconduct tied to U.S. Bank’s administration of the ReliaCard unemployment program.

1. Freezing Accounts Without Adequate Consumer Protections

U.S. Bank introduced new fraud-related freeze criteria that caused widespread account holds. According to the CFPB:

• Cardholders suddenly lost access to unemployment funds deposited to their prepaid cards.
• Many freezes lasted weeks or longer, even when consumers were eligible recipients.
• Consumers who tried to unfreeze their accounts encountered limited or ineffective channels to verify their identities.

The Bureau concluded that the bank failed to provide adequate means for eligible cardholders to prove who they were and regain access to essential benefits in a timely manner.

2. Inadequate Identity Verification Processes

To lift a freeze, consumers often had to submit documentation or interact with customer service. The CFPB found that these processes were deficient:

• Instructions to consumers were sometimes unclear or inconsistent.
• Processing of submitted documents could be slow or incomplete.
• As a result, legitimate beneficiaries remained locked out of critical unemployment funds for extended periods.

In the CFPB’s view, the bank’s internal fraud controls were not balanced with reasonable procedures to protect consumers’ access to lawful benefits.

3. Failure to Properly Handle Error Notices and Unauthorized Transfers

Regulators also criticized how U.S. Bank dealt with cardholders who reported unauthorized electronic fund transfers or other account errors. The CFPB found:

• Investigations into consumer complaints were not always conducted within the timeframes required by Regulation E.
• In many cases, the bank did not provide provisional credits while disputes were being reviewed, leaving consumers without temporary access to disputed amounts.
• Some consumers experienced both frozen accounts and unresolved unauthorized transfer claims simultaneously, compounding financial hardship.

Monetary Penalties and Consumer Redress

The enforcement action resulted in significant financial consequences for U.S. Bank from multiple regulators.

Combined, U.S. Bank faced more than $35 million in penalties and redress obligations tied to its unemployment prepaid card practices.

Conduct Requirements: How U.S. Bank Must Change Its Practices

In addition to monetary consequences, the CFPB order imposed forward-looking conduct provisions designed to prevent similar problems in the future.

Improving Access to Funds

• U.S. Bank must implement guardrails on how and when it limits consumer access to unemployment benefit accounts.
• The bank is required to maintain reasonably designed processes for consumers to regain access to frozen accounts in a timely, predictable way.

Strengthening Error Resolution Under Regulation E

• Consumers who submit notices of error online regarding unauthorized electronic transfers may not be forced to provide additional written confirmation before receiving provisional credits, subject to the terms of the order.
• The bank must ensure that investigations into alleged unauthorized transfers are completed within applicable regulatory time limits and that appropriate reimbursements or credits are provided where required by law.

Compliance and Oversight

• The order required U.S. Bank to adopt and maintain policies, procedures, and internal controls that address the violations identified by the CFPB.
• The Office of the Comptroller of the Currency (OCC) also required improvements related to the bank’s administration of the program, focusing on unfair practices and risk management.

By September 22, 2025, the CFPB issued a separate document terminating the original consent order after determining that U.S. Bank had met certain obligations, including payment of penalties and implementation of required conduct changes.

Consumer Impact: Who Was Affected and How

The enforcement action highlights the vulnerability of consumers who rely on prepaid cards for essential income support.

• Tens of thousands of unemployment benefit recipients had their accounts frozen for extended periods, often during a period of exceptionally high national unemployment.
• Impacted consumers reported difficulty paying for necessities such as rent, utilities, and food while they waited for account access or dispute resolution.
• Some cardholders simultaneously faced both an account freeze and an unresolved unauthorized transfer complaint, leaving them without access to any part of their unemployment benefits.

The CFPB stated that the bank’s actions occurred “at the height of the COVID-19 pandemic,” when unemployment in the United States reached historically high levels and many consumers had limited alternatives.

Broader Regulatory Context: Other Agencies and Similar Cases

The U.S. Bank case fits within a wider pattern of regulators scrutinizing prepaid card programs used to distribute public benefits.

• The OCC assessed a $15 million civil money penalty against U.S. Bank for unfair practices tied to its unemployment benefits prepaid card program, emphasizing its authority over national banks’ safety, soundness, and consumer compliance.
• The Federal Reserve has brought similar enforcement actions against other banks over deficiencies in prepaid card programs and customer identification rules, including a 2023 action against Metropolitan Commercial Bank.
• Regulators have also imposed major penalties on other institutions involved in pandemic-era unemployment prepaid programs, reinforcing that public benefits distribution through private financial institutions must comply with consumer protection laws.

Lessons for Financial Institutions and Program Managers

For banks, fintechs, and third-party program managers involved in prepaid card programs, especially for public benefits, this case underscores several key compliance lessons.

Balance Fraud Controls With Consumer Access

• Fraud risk during emergencies can be significant, but controls must be calibrated to avoid unlawfully denying legitimate consumers access to essential funds.
• Institutions should evaluate whether account-freeze triggers, bulk holds, and other mass actions disproportionately harm eligible beneficiaries.

Design Robust, User-Friendly Identity Verification

• When identity verification is required to lift a freeze, processes must be clear, accessible, and capable of timely resolution.
• Multiple channels (online, phone, secure document upload) and transparent status updates can reduce consumer harm and regulatory risk.

Strict Adherence to EFTA and Regulation E

• Institutions must have documented procedures for promptly handling error notices and unauthorized transfer claims, including tracking deadlines and providing provisional credits when required.
• Prepaid card programs must be integrated into enterprise-wide compliance frameworks, not treated as peripheral or lower-priority products.

Practical Guidance for Affected or Future Cardholders

Current or former unemployment prepaid cardholders can take several steps to protect themselves, whether or not they were directly involved in the U.S. Bank case.

• Document everything: Keep records of benefit deposits, card statements, communications with the bank, and any dispute or complaint numbers.
• Report unauthorized transfers quickly: Prompt reporting is crucial for preserving rights under EFTA and Regulation E. Delays can limit the amount a consumer can recover.
• Follow up in writing: Even if a dispute is submitted online or by phone, retaining a written record (screenshots, emails, mailed letters) can help support later claims.
• Escalate when necessary: If a financial institution fails to resolve a complaint or provide required protections, consumers may file a complaint directly with the CFPB.

Frequently Asked Questions (FAQs)

Q1: What is the ReliaCard program?

ReliaCard is U.S. Bank’s prepaid debit card product that states and government agencies can use to distribute funds such as unemployment insurance benefits. Cardholders access funds loaded by the state, rather than money in a traditional checking account.

Q2: Why did the CFPB take action against U.S. Bank?

The CFPB found that U.S. Bank froze tens of thousands of unemployment prepaid card accounts and did not provide sufficient, timely ways for eligible consumers to regain access to their benefits. The Bureau also determined that the bank failed to properly handle notices of unauthorized electronic fund transfers and did not always provide provisional credits as required by the Electronic Fund Transfer Act and Regulation E.

Q3: How much did U.S. Bank have to pay?

Under the CFPB order, U.S. Bank was required to provide $5.7 million in redress to affected cardholders and pay a $15 million civil money penalty. Separately, the Office of the Comptroller of the Currency assessed an additional $15 million civil money penalty related to the same prepaid unemployment program.

Q4: Are similar prepaid card programs regulated the same way?

Yes. Prepaid card programs used to distribute public benefits are subject to federal consumer financial protection laws, including the CFPA and the Electronic Fund Transfer Act, as well as oversight by agencies such as the CFPB, OCC, and Federal Reserve, depending on the institution involved.

Q5: Does the termination of the consent order mean U.S. Bank did nothing wrong?

No. Termination of the order in 2025 indicates that U.S. Bank met the obligations imposed by the consent order, such as paying penalties and implementing required compliance changes. The underlying findings of violations by the CFPB remain part of the public enforcement record.

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Author

medha deb

 

Medha Deb is an editor with a master's degree in Applied Linguistics from the University of Hyderabad. She believes that her qualification has helped her develop a deep understanding of language and its application in various contexts.

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