Unsanitized: The COVID-19 Report for June 26, 2020

Stimulus Debit Cards Come With a Forced Arbitration Clause
Card recipients will not be able to sue or join class-actions if they
have a dispute

 

Treasury Secretary Steven Mnuchin hands President Trump a debit card
used to pay 3.6 million families their CARES Act payments. (Evan
Vucci/AP Photo)

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.

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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.

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"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."

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Days Without a Bailout Oversight Chair

[link removed]
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.

We Can't Do This Without You

Today I Learned

* Quick update on the renewed first wave: reopening is starting to pause

in Texas

and other hotspots. (Axios; Texas Tribune)

* New Jersey reported

some old "probable" coronavirus deaths, which skewed yesterday's death
count. Official deaths remain low. (NJ.com)

* Senate Republicans finally realizing

they may need to do something on the economy to stem collapse. (National
Review)

* As expected, Chuck E. Cheese files for bankruptcy
.
(Reuters)

* How the Virus Won
, a
great data visualization. (New York Times)

* How the virus won in Arizona
,
just prose. (Washington Post)

* Bank stress tests lead to the Fed capping dividends and halting
buybacks
,
but they should have gone further. (The Hill)

* Crazy Silicon Valley scam story

about N95 masks repackaged using TaskRabbit and resold through to
hospitals. (ProPublica)

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