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Can I Sue a Prepaid Debit Card Company Involving Federal Benefits?

Yes, if you are the victim of fraud, you may be able to sue your prepaid debit card company if they fail to reimburse you for the money you are out. You have to follow the procedures laid out in the company's terms and conditions, including properly and timely notifying them of any fraudulent transactions, but as long as you do, you may have claims for breach of contract and violation of a federal statute.

If you are struggling to get reimbursed for money stolen from your account, you may benefit from talking to a consumer protection attorney. You may be able to get a free consultation from a good lawyer who can give you legal advice about what your rights are.

Using Prepaid Debit Cards for Your Federal Benefits

Prepaid accounts are among the fastest-growing consumer financial products in the United States. You can use them with your government benefits, such as Social Security, Supplemental Security Income (SSI), and veteran's benefits, through Direct Express, a direct-deposit option.

You can get a MasterCard for your Direct Express account through Comerica, which Conduent Business Services operates. You can use your card like a credit card at ATMs and retail stores, as well as store money in your account like a checking account. Prepaid accounts are a convenient way to manage your money without having to open an account at a bank or a credit union. With a prepaid account, you cannot spend what you don't have.

They also provide some protection against garnishment from debt collectors. Generally speaking, many federal benefits such as Social Security can only be garnished for back child support and government debts. Unlike bank accounts or credit union accounts, however, prepaid account information is not reported to credit bureaus. A creditor cannot garnish an account it cannot find.

You May Be a Victim of Fraud

If someone gets your account information, they can steal your benefits from your prepaid account. Imagine this scenario: suppose you are retired and receive social security. You get your benefits deposited into your prepaid account each month. You're frugal, so you accumulate, let's say, thirty thousand dollars or so.

Somehow, someone in Bermuda manages to get your card number. They drain your entire account. You notify Conduent of the fraud. They cancel your card and conduct an investigation. Even though you have never been to Bermuda, they determine that no fraud occurred and refuse to reimburse you for your loss.

You are retired—you need that money. You cannot afford to lose any amount, much less thirty grand. You won't be able to get by if you don't get your benefits back. Although you complain to customer service, they politely inform you that their decision is final.

No need to panic. You may be able to sue Comerica and Conduent to recover your lost benefits under a couple of different legal theories.

Was There a Breach of Contract?

The first is for breach of contract. A contract is an exchange of promises that the law recognizes as binding and for which it provides a remedy in court. A contract consists of three elements:

  • Offer — A promise to do or refrain from doing something in exchange for something else
  • Acceptance — objective assent to the terms of an offer
  • Consideration — something bargained for and received by the person who made the offer (the promisor) from the person who accepted it (the promisee)

If you have a contract with someone and they fail to live up to its terms, a court can order them to pay you enough money to put you in the position you would be in if they did keep their promise. These are called expectation damages. You may be able to recover additional sums, depending on your claim.

Terms of Service

When you set up your prepaid debit card account for your government benefits, you entered into a binding agreement with the card issuer, Comerica. According to that agreement, so long as you notify them within two days of a fraudulent transaction, the most you can be out is $50 dollars. If you fail to notify them within two days, and they can prove they could have stopped someone from using your card or card number, the most you can be out is $500.

Make sure you notify Comerica as soon as you learn your card has been lost or your card number has been stolen. If you do, and Comerica says you're on the hook for purchases or withdrawals that exceed those amounts (depending on when you notify them), you may be able to get much of your money back in a lawsuit against them.

Electronic Funds Transfer Act (EFTA)

The second claim you may be able to sue for is based on a federal statute, the Electronic Funds Transfer Act (EFTA). The EFTA protects consumers when they transfer funds electronically. It provides a way to fix transaction errors and limits your liability for a lost or stolen prepaid debit card.

A lawyer could provide you with detailed legal advice about what your rights and responsibilities are under the statute. Generally, the EFTA allows consumers to challenge fraud and other account errors so long as certain time limits are met.

If you properly notify Comerica within those time limits, the amount you could be on the hook for is limited. And if Comerica does not live up to its responsibilities under the statute, it may have to pay you three times the amount you are owed (in legal terms, you might see this referred to as treble damages).

Pending Class Action: Carnley v. Conduent Business Services

You would not be the first person to sue Comerica and Conduent in connection with Direct Express. In fact, a group of people has filed a lawsuit in federal court in Texas in what is called a class action under the name Carnley v. Conduent Business Services. They, on behalf of many other account holders (including you perhaps), claim that Comerica and Conduent failed to live up to their contractual and statutory responsibilities, which resulted in the loss of many people's federal benefits.

As of May 16, 2022, the court is considering a request to let the people bringing the lawsuit represent many other account holders. This request is called a motion for class certification. If the judge agrees (“certifies a class"), then everyone within the class of other account holders may get some relief without having to file their own lawsuits.

If you receive notification that you are a member of the class but don't want to be, you can “opt out" and file your own lawsuit. The notification will have instructions on what you need to do to opt out. If you don't opt out, you may be bound by whatever relief the judge gives the class. That could be a portion of a settlement, a monetary judgment, or if they lose, nothing.

Class actions are complicated and can get quite complex, even for experienced attorneys. So if you want to know more about class actions generally or what your rights may be in light of this proposed class action, you should consult an experienced class action attorney. We provide the case number here for your and your lawyer's convenience.

Consumer Financial Protection Bureau (CFPB)

You don't have to file a lawsuit just yet, however. If Comerica and Conduent aren't getting back to you, or are giving you the run-around, you could submit a complaint with the Consumer Financial Protection Bureau (CFPB). The CFPB is a government agency dedicated to ensuring that consumers are treated fairly by banks and other financial institutions. They enforce federal consumer financial laws.

Filing a complaint with the CFPB is free and easy. You can submit one electronically on their website. Make sure you have all important details, including dates and amounts, and all relevant documents.

After you submit a complaint, they will send it to Conduent and Comerica and work to get you a response. Most companies respond within 15 days. If they need more time, the CFPB will let you know. You should get a response within 60 days.

If You Have Trouble With Direct Express, A Lawyer Can Help

More than 4.5 million Americans use the Direct Express program. It provides a great way to manage your federal benefits, especially if you do not have a bank account. There are many benefits to cardholders who use this program.

But with a program that big, there are bound to be occasional problems. If you run into trouble with your prepaid debit card account, consider speaking with an experienced consumer protection attorney. They can help you better understand your rights, guide you through the claims process, and may be able to help you get your money back if you can't do it on your own.

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