BofA ordered to halt some fraud deterrents for unemployment payments

A federal judge restricted Bank of America from using some fraud deterrents or freezing accounts used by jobless Californians to access their unemployment payments.

The order by U.S. District Judge Vince Chhabria on Tuesday barred the bank from denying claims of unauthorized transactions using its automated fraud filter. The bank also cannot deny claims of fraud reimbursement without providing a written explanation of its findings or deny claims of provisional credit without conducting an investigation.

The bank has an exclusive contract with the California Employment Development Department for the administration of unemployment benefits. The department has been blamed for massive security breaches that resulted in billions of dollars being stolen from the state through unauthorized transactions during the pandemic. The bank has paused payments on millions of accounts while it investigates claims of fraudulent activity.

"As California's unemployment program faced billions of dollars in fraud, Bank of America's No. 1 goal always has been to ensure legitimate recipients could access their benefits," bank spokesman Bill Hardin said in a statement. "With this agreement, we are committing to additional measures to help those entitled to unemployment benefits receive those benefits as quickly as possible."

U.S. District Judge Vince Chhabria issued the preliminary injunction to a class of plaintiffs who argued that the bank improperly cut off access to their accounts in response to the rampant fraud of unemployment benefits. The Employment Development Department uses cards supplied by the bank to distribute unemployment payments. Yick v. Bank of America, 21-cv-00376 (N.D. Cal., filed Jan. 14, 2021).

"Not only did the bank fail to implement basic security measures, it then treated EDD cardholders who were the victims of fraud as if they were the criminals, often freezing them out of their accounts for months on end," said plaintiffs' attorney Brian Danitz of Cotchett, Pitre & McCarthy, colead counsel for the class.

Chhabria ordered Bank of America to reopen claims it denied using its automated system, provide credit if those claims cannot be resolved within 10 business days and staff call centers to be open at all times to resolve fraud disputes.

"The class is comprised of people who depend on unemployment benefits to get through the pandemic," Chhabria wrote. "As the plaintiffs' evidence shows, continued denial of these benefits will seriously hinder the ability of many class members to feed their families and keep a roof over their heads."

The lawsuit alleged that the Bank of America froze the accounts of people who reported unexplained charges to their balances. Class members targeted the bank's decision to use outdated, vulnerable magnetic stripe technology for cards issued to beneficiaries rather than industry standard chips. They argued its failure to employ basic security safeguards encouraged fraud.

The state assembly on Tuesday approved legislation that would have the Employment Development Department deposit payments directly into the accounts of unemployment beneficiaries.