Bank of America has been fined $225 million by federal regulators for botching the disbursement of state unemployment benefits and unlawfully freezing consumer accounts, particularly in California, at the height of the pandemic.
The Office of the Comptroller of the Currency fined BofA $125 million for engaging in “unsafe or unsound practices” in distributing unemployment, disability and pandemic-relief benefits to consumers in 12 states through prepaid debit cards. The Consumer Financial Protection Bureau in a separate order fined the bank $100 million.
The OCC and CFPB also ordered Bank of America to provide remediation and lump-sum payments to harmed consumers. The value of those additional payments is unclear.
The $2.5 trillion-asset bank held contracts with a dozen states in 2020 to provide government benefits on prepaid debit cards. Massive fraud during the pandemic quickly overwhelmed state agencies, especially in California, where frantic consumers spent months trying to access benefits after being locked out of their accounts due to fraud.
BofA has countered that the federal Pandemic Unemployment Assistance program did not require upfront income or employment verification by state agencies. As a result, fraudsters were able to self-certify their eligibility to receive benefits in many states.
“Bank of America partnered with our state clients to identify and fight fraud throughout the pandemic,” said BofA spokesman Bill Halldin. “This action arose despite the government’s own acknowledgement that the unemployment program expansion during the pandemic created unprecedented criminal activity where illegal applicants were able to get states to approve tens of billions of dollars in payments.”
Bank-issued prepaid benefits cards were supposed to help state governments deliver these funds more efficiently. But the pandemic scrambled the economics of these programs.
Regulators said BofA
“The bank failed these prepaid cardholders by denying them access to their mandated unemployment funds during the height of the pandemic, and leaving these vulnerable consumers without an effective way to remedy the situation,” acting Comptroller of the Currency Michael Hsu said in a statement.
The OCC said BofA’s practices violated the Federal Trade Commission Act, which prohibits “unfair or deceptive acts or practices,” and cited the bank’s failure to adequately investigate and resolve consumer claims of unauthorized transactions.
The OCC also found other deficiencies in the bank’s administration of the program, including in operational processes, risk management and internal controls. The OCC said the deficiencies resulted in violations of law and harm to consumers. It ordered BofA to take corrective action to improve its risk management, contract review and approval processes, and enterprisewide complaints.
BofA already has paid hundreds of millions in fraud claims. In California, it also has been fighting a consolidated class action alleging the bank purposely denied consumer claims to avoid losses
The CFPB said that BofA engaged in “unfair and abusive acts and practice” that resulted in Californians specifically not getting their unemployment benefits at the height of the pandemic.
“Bank of America failed to live up to its legal obligations. And when it got overwhelmed, instead of stepping up, it stepped back,” CFPB Director Rohit Chopra said in a press release.
California’s Employment Development Department alone estimated last year that $20 billion of the $180 billion in benefits paid out since March 2020 went to fraudsters, members of organized crime rings and
Under the CFPB's order, the bank must also provide each affected consumer with "a lump sum consequential harm payment, to be determined through a methodology of financial harm consumers suffered due to the time their accounts remained frozen or blocked."
Additionally, the CFPB said "affected consumers will have the opportunity to receive additional redress through an individualized review process."
BofA has mostly pulled out of the government benefits business and now only serves California, and it has plans to get out of that contract next year.
