Bank of America is facing $225 million in fines from the federal government after it automatically and unlawfully froze the accounts of Californians and people in other states applying for unemployment benefits during the height of the pandemic, according to the Consumer Financial Protection Bureau (CFPB).
Bank of America has an exclusive contract with the California Employment Development Department to provide electronic services and debit cards for people to access unemployment and other benefits. The bank previously handled the unemployment benefits for 12 states but now administers benefits only for California.
The CFPB said it is fining the bank $100 million for freezing the accounts of people who were in desperate need of benefits during the darkest days of the pandemic’s economic effects, and giving them virtually no options to access the needed funds when there was no fraud present.
That money will be deposited into a victims’ relief fund, while the separate Office of the Comptroller of the Currency is fining the bank an additional $125 million to be sent to the Treasury Department.
“Taxpayers relied on banks to distribute needed funds to families and small businesses to rescue the economy from collapse when the pandemic hit,” CFPB Director Rohit Chopra said in an emailed statement.
In an email, the bank said it had consented to the agreements. Bank of America said it did not admit or deny any of what the CFPB said had occurred.
“Bank of America was hired by states to administer unemployment payments and the states were responsible for reviewing and approving applications and directing us to issue payments,” the company said in an email.
The bank said it distributed “more than $250 billion in pandemic unemployment benefits to more than 14 million people and overall distributed more pandemic relief to Americans than any other bank.”
The statement pointed to government acknowledgment that the rapid expansion of pandemic unemployment benefits and programs led to increased fraud, some of it brazen and public, to the tune of billions of dollars.
EDD has since contracted with identity verification company ID.me, which it says has so far prevented $125 billion in attempted fraud.
“Bank of America partnered with its state clients to identify and fight fraud throughout the pandemic. For example, we worked with California to identify hundreds of thousands of suspicious cards and assisted the state in protecting billions of dollars,” the company said.
EDD responded to a request for comment but did not immediately address emailed questions.
The agency froze up to 1.4 million accounts because of suspected fraud, locking many people out of benefits and into a spiral of trying to prove their identity that went on for weeks or months.
The expansion of federal pandemic unemployment relief led to an avalanche of identity theft that affected people with legitimate EDD accounts and prepaid debit cards, as well as fraudulent applications for benefits filed by criminals, the CFPB said.
The agency said Bank of America replaced individual fraud investigations with an automated process that relied on a series of red flags and froze accounts with a too-low bar for doing so. People were virtually unable to unfreeze their accounts once locked out and were unable to make reports at bank branches or online.
The bank no longer uses that automated system and investigates accounts flagged for fraud manually before freezing them.
Call centers also failed to operate 24/7 as promised, the CFPB said, and the bank repeatedly referred customers back to an overwhelmed EDD to verify their identity, despite “meeting with the department dozens of times in the summer of 2020 and should have known it was essentially redirecting people into a black hole.”
The bank will be required to pay back the money it wrongfully denied to people using its faulty fraud filter and to provide each affected person a lump-sum payment as compensation.
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