BofA sued by pension fund for fraud in unemployment benefits program

Bloomberg News

A pension fund has sued Bank of America's CEO Brian Moynihan, the bank's board and senior managers for breaching their fiduciary duties when the bank froze unemployment benefits on prepaid cards for tens of thousands of people at the height of the pandemic. 

The Seafarers International Union of North America filed a lawsuit Monday alleging BofA's management and board were focused "on profits over actual remediation and legal compliance." The 190-page lawsuit claims the $3.1 trillion-asset bank in Charlotte, N.C., did not have adequate systems to combat fraud and illegally used a fraud filter that blocked customers from accessing their money. The pension fund also faulted BofA for using cheaper, less secure magnetic stripes that were prone to fraud, an allegation made in other plaintiffs' lawsuits against the bank. 

In July, BofA was fined $225 million by federal regulators for botching the disbursement of state unemployment benefits and unlawfully freezing consumer accounts, particularly in California. The Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau found that BofA had not implemented any system of oversight to monitor compliance with applicable laws and regulations.

BofA declined to comment. 

"Despite the need for improvement, BOA's only concerns were preventing fraud losses and exiting the Prepaid Card business," the lawsuit states. "As a result of this surge in fraud and the reported costs to BOA resulting therefrom, the Individual Defendants instituted, maintained, and continually focused on enhancing anti-fraud measures that they knew caused the denial or delay of unemployment benefits to hundreds of thousands of legitimate recipients in violation of the law."

Regulation and compliance

BofA fined $225 million for failing to rein in benefits fraud

July 14, 2022 4:13 PM

In 2020, BofA held contracts with 12 states to provide government benefits on prepaid debit cards. But massive fraud during the pandemic quickly overwhelmed state agencies and the bank. Regulators said BofA failed to respond to tens of thousands of cardholders who reported unauthorized transactions by fraudsters that had drained their accounts. In an effort to combat the fraud, BofA froze the accounts of thousands of legitimate beneficiaries who were blocked from accessing their money.

The lawsuit alleges BofA responded with "illegal, self-serving policies."

"The Individual Defendants knew that BOA was not complying with its legal and contractual duties in administering the Prepaid Card Program but chose to focus on maintaining profits instead," the suit states. 

The size and volume of BofA's prepaid card program skyrocketed during the pandemic. In mid-2020, BofA had issued six million cards distributing $27 billion in benefits, compared with one million cards holding $1 billion in benefits at the beginning of that year. Since the pandemic, BofA has largely pulled out of the government benefits business and is still trying to get out of its contract with California.