Bank of America fined $225 million over unemployment benefits package
A woman is reflected in a puddle as she walks past a Bank of America branch in Times Square in New York.
Brendan McDermid | Reuters
Federal regulators fined Bank of America $225 million for ‘botched the payment of state unemployment benefits at the height of the pandemic,’ which was investigated by CNBC Last year.
The Consumer Financial Protection Bureau fined the company $100 million and, in a separate order, the Office of the Comptroller of the Currency fined the bank $125 million. The order requires Bank of America to engage in a process that will compensate consumers whose accounts were frozen due to what the CFPB called a “flawed fraud detection program.”
Both fines were handed down on Thursday.
“The bank let these prepaid cardholders down by denying them access to their mandatory unemployment funds at the height of the pandemic, and leaving these vulnerable consumers without an effective way to remedy the situation,” the Comptroller said. Acting Mint Michael Hsu. “Banks must pay attention to the financial health of their customers and conduct their business in compliance with all consumer protection laws.”
Bank of America had contracts with about 12 state agencies to make unemployment and benefit payments through prepaid debit cards. There is only one left, California, which recently extended the relationship. When the pandemic hit and the unemployment rate skyrocketed in 2020, these cards were the target of a lot of fraud.
In a statement to CNBC, the bank said “states were responsible for reviewing and approving applications and directing [BofA] to issue payments. As such, Bank of America said it has helped the government “successfully issue more than $250 billion in pandemic unemployment benefits to more than 14 million people and globally distribute more pandemic relief to Americans than any other bank.”
“This action took place despite the government’s own acknowledgment that expanding unemployment during the pandemic has created unprecedented criminal activity where illegal applicants have been able to trick states into approving tens of billions of dollars in payouts,” he said. said Bank of America, adding that it “has partnered with our state customers to identify and combat fraud throughout the pandemic.”
As part of its investigation, CNBC profiled three victims, who were receiving unemployment insurance in California during the pandemic and said they initially found no recourse with the bank when their accounts were frozen. . A single mother says she had to break the bank for her child to survive. Another victim choked up as she told CNBC how she left a grocery store empty-handed when her prepaid card was declined. A musician says he had to live in his car for a few weeks after his funds were stolen from his account. In the end, the bank credited the three for their missing funds.
CNBC’s investigation found that states like California and Nevada saw an inordinate share of so-called transaction fraud during the pandemic because, with few exceptions, their unemployment insurance was dispensed via debit cards without chips, which meant there was a lower level of security.
Card experts told CNBC that prepaid government cards typically lack chips because they can be more expensive to produce.
The CFPB said in its statement today that under the Electronic Funds Transfer Act, a financial institution must conduct a “prompt, reasonable and timely investigation” when there has been an error relating to the money transfer, including prepaid cards.
“Taxpayers relied on banks to distribute needed funds to families and small businesses to save the economy from collapse when the pandemic hit,” CFPB Director Rohit Chopra said. “Bank of America failed to meet its legal obligations. And when he was overwhelmed, instead of stepping up, he backed off.”