Unsanitized: Stimulus Debit Cards Come With a Forced Arbitration Clause

Card recipients will not be able to sue or join class-action lawsuits if they have a dispute. This is The COVID-19 Daily Report for June 26, 2020.

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First Response

The Government Accountability Office report on CARES Act programs announced in bold: the IRS mailed 1 million checks to dead people. GAO put that front and center and the media complied, with the Washington Post headlining it. The IRS was apparently aware of the issue but found no legal authority for withholding money for anyone who filed tax returns in 2019. So it wasn’t really IRS’s fault, and it affects 0.5 percent of all the payments they made.

Worse, GAO decided to put the dead people issue on its front page but buried on page 220 that 450,000 children of those who don’t file taxes—the poorest people in the country, those who have no tax liability—didn’t get the $500 checks to which their families were entitled, even though the families listed these children on the IRS’s online non-filer tool. So we hear about the checks that went out to dead people but not the ones that didn’t go out to live children. It’s the usual media-government bias toward waste and greedy people getting what they don’t deserve. It’s appalling.

But that’s not the only secret lurking in these Economic Impact Payments (EIPs), as they’re known. About 10 percent of the EIPs that didn’t get to people via direct deposit went out on debit cards, through a contract with two private financial companies. And those debit cards block recipents’ access to courts, with a forced arbitration agreement.

Read all of our Unsanitized reports

The cards are called EIP Cards, and about 3.6 million American households who didn’t have bank information on file with the IRS received them. They operate like a Visa card, and can be used for purchases or at ATMs. It’s unclear why certain people were selected for the EIP Card; they have only gone to two regions of the country, for people with tax returns processed in Austin, Texas or Andover, Massachusetts.

The contract to issue the cards wasn’t inked until late April. “Prepaid debit cards are secure, easy to use, and allow us to deliver Americans their money quickly,” said Treasury Secretary Steve Mnuchin in May.

Fiserv and MetaBank, two dominant service providers in the prepaid debit card space, won the contract. It was said at the time that this would speed up payments, though the IRS didn’t start sending them until May 15, a month after paper checks began to be disbursed, and even then only to 10 percent of the country. It seems like a test run, to confirm that the system would work. In the future maybe all payments of this type would be distributed via reloadable debit cards, which you would only have to send out once.

Problems immediately cropped up, because the cards were sent in plain white envelopes, with no indication that it was money from the government. Many threw the cards away, thinking it was a scam or junk mail.

But the bigger scam was in the fine print.

As per the law, Fiserv and MetaBank put the cardholder agreement online, as well as a fee schedule. The cards are generally pretty cheap, but they carry out-of-network ATM fees ($2 for ATMs without the AllPoint brand), bank teller cash withdrawal fees ($5), balance inquiry fees ($0.25), international transaction fees (various), lost or stolen card replacement fees ($7.50), and priority shipping fees ($17). But section 16 of the cardholder agreement is a bigger deal, as it includes an arbitration clause.

If users have a dispute over the EIP Cards—unauthorized or undisclosed fees, malfunctioning cards, or anything else—they must go through a third-party arbitrator to settle that dispute. This is virtually universal for prepaid debit cards, but unusual for something authorized by the U.S. government as a payment, especially when only a fraction of recipients got the EIP Cards as opposed to paper checks.

“The fact that it’s relatively common among private card companies is true and it’s also a problem,” said Paul Bland, an attorney with Public Justice who first discovered and publicized the arbitration agreement. “The card company is able to impose various fees illegally and users are unable to hold them accountable for it. And for the government to say you only get this money if you give up the right to trial by jury, it’s really unusual.”

Forced arbitration means that customers cannot join together in a class-action lawsuit to get their disputes settled. On something like a debit card, that means that the inevitably small claims must be fought in a private, secret arbitration setting, at great expense, to recover a small amount of money. It’s difficult to find a lawyer to take such a case, and it’s usually not worth it. A Consumer Financial Protection Bureau study of arbitration in 2015 found that consumers filed only about 400 arbitration suits across a wide section of the financial services space annually, with limited success. And because arbitration is secret, even if a company was found robbing customers, they wouldn’t have to disclose that information to the public.

In other words, companies insert arbitration clauses because they work, protecting them from liability and incentivizing them to steal with impunity.

Importantly, these arbitration agreements have a 60-day opt-out. But you have to read the cardholder agreement to know that; there is no additional information in with the card explaining that users have 60 days to write to MetaBank’s subsidiary, Money Network Financial, and request opting out. But this seems like a fig leaf. “The consumer understanding of the fine print is infinitesimal,” Bland said, citing the CFPB study, which showed that only 4 percent of those surveyed understood an arbitration agreement after reading it. “It’s PR, so they can say to Congress it’s voluntary.”

MetaBank and Fiserv have another contract with the government called the U.S. Debit Card, for payments sent by agencies other than federal benefits. You need a cardholder login to access that cardholder agreement, but given industry practice, it’s likely that it also contains an arbitration agreement.

Fiserv is one of two major players providing back-office technological support to banks. MetaBank is one of the largest prepaid card issuers in the U.S., including RushCard, an offering from hip-hop impresario Russell Simmons. RushCard had a high-profile meltdown in 2015, where thousands of users couldn’t access their money for over a week. MetaBank has been accused of several other transgressions, including holds on accounts, failure to refund unauthorized transactions, account balance errors, hidden fees, and more.

Both MetaBank and Fiserv referred all questions about the EIP Card to Treasury’s Bureau of the Fiscal Service. Treasury has not responded to a request for comment.

Earlier this week, five Senate Democrats questioned Treasury about the EIP Cards, but focused on the fee schedule, not the arbitration clause. One of those Democrats was Sen. Sherrod Brown (D-OH), ranking member of the Senate Banking Committee. “I have consistently opposed arbitration clauses tucked into the fine print of contracts that deny consumers access to the court system when they’ve been cheated or harmed,” said Senator Brown in a statement to the Prospect. “It’s appalling when Wall Street banks, payday lenders, and credit card companies use these arbitration clauses—and even worse when authorized by the Treasury Department, a government agency that is supposed to serve the American people.”

Days Without a Bailout Oversight Chair

91. But that may be ending soon! A report indicates that Nancy Pelosi and Mitch McConnell are coalescing around someone with the know-how and experience to challenge Federal Reserve corporate bond-buying and municipal liquidity facilities… retired general Joseph Dunford, former chairman of the Joint Chiefs of Staff?

Is this a joke? Politico charitably notes that Dunford has “limited experience in financial policy,” which I assume is limited to, I don’t know, having a bank account. Remember that oversight was the vaunted win for Democrats on the CARES Act. I thought that Pelosi couldn’t find someone with less experience overseeing a Federal Reserve bailout than Donna Shalala, but I underestimated her ingenuity.

Today I Learned

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