IMPACT: Treasury to open Comerica deal to new bids after CPI report

Introduction

The U.S. Treasury has agreed to consider hiring a new vendor when a controversial deal with Comerica bank to issue debit cards to beneficiaries of federal programs expires in 2015.

Comerica has an exclusive contract to issue Direct Express cards, which Treasury uses to deliver Social Security and other benefits to people who do not directlly deposit benefits into a bank account.

Treasury decided to solicit fresh bids and consider changing bank partners because of concerns that were first raised publicly in a report last week by The Center for Public Integrity, according to two people with direct knowledge of the matter. They spoke on condition of anonymity to avoid souring their relationships with Treasury.

CPI reported that Comerica won the original deal in 2008 by offering to provide the cards at no cost to taxpayers. About two years later, Treasury quietly amended the contract to add tens of millions in new payments to Comerica. The bank had complained that it was having trouble profiting under the financial terms to which it originally agreed.

Treasury’s inspector general, its independent, internal watchdog, is probing the deal. One core concern: Treasury failed to consider other banks when it added the compensation for Comerica. Comerica has received about $30 million in direct payments from Treasury, according to testimony at a congressional hearing. The amount will likely increase as more people sign up for Direct Express cards.

The deal also attracted scrutiny from the Senate Special Committee on Aging. At last week’s hearing, Democrats on the committee grilled Richard Gregg, Treasury’s Fiscal Assistant Secretary, about the deal’s lack of transparency and open competition.

Treasury’s special contracts with banks rarely are put out for competitive bidding—especially when a program is as new as Direct Express. A more typical example is Navy Cash, a system of stored-value cards and kiosks on ships and other closed government locations. JPMorgan was picked to run the program on a pilot basis in 1999. The Wall Street behemoth still holds the contract, worth roughly $18 million per year, after routine renegotiations and one “re-designation” by Treasury in 2003.

CPI found that Treasury has pressured people to use Direct Express, even if it exposed them to higher fees. The report also detailed the Treasury’s decision to give Comerica tens of millions of dollars in compensation that was not part of the original deal.