The Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) have issued fines in excess of $225 million against Bank of America for its alleged failures relating to the distribution of state unemployment benefits during the COVID-19 pandemic.
Bank of America administered the Unemployment Benefits Prepaid Card Program on behalf of 12 states, including an exclusive contract with the State of California, where the account freezes occurred.
According to the CFPB’s order, “Bank of America automatically and unlawfully froze people’s accounts with a faulty fraud detection program, and then gave them little recourse when there was, in fact, no fraud.” The $100 million fine from the CFPB seeks to compensate those that were negatively affected by the account freezes.
“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 a release. “Bank of America failed to live up to its legal obligations. And when it got overwhelmed, instead of stepping up, it stepped back.”
In its investigation, the CFPB found that Bank of America engaged in unfair and abusive acts and practices that resulted in Californians not getting their unemployment benefits at the height of the pandemic when many people needed the money the most. Specific findings include that the bank:
- Replaced reasonable investigations with a faulty fraud filter. In the fall of 2020, and continuing through mid-2021, Bank of America changed its practices for investigating prepaid debit card fraud on the unemployment insurance benefit accounts. Instead of conducting reasonable investigations, it implemented a fraud filter with a simple set of flags that automatically triggered an account freeze.
- Left distressed consumers in the lurch. Bank of America allegedly made it difficult for people to unfreeze their prepaid debit cards or for people to report fraudulent use of their cards. People with unemployment insurance benefit prepaid debit cards could not make reports online, or in person at bank branches. People were on hold for hours every day for weeks trying to talk to someone at the bank. Furthermore, the bank told customers they had agents available 24 hours a day, seven days a week, when, in fact, it operated a more limited schedule for its claim call center.
- Shifted responsibility to an overwhelmed state agency. When consumers sought assistance, the bank often sent them back to the California state unemployment department for verification in order to regain access to their benefits. The CFPB asserts that the bank knew the department was stretched and unable to provide services; and that the bank met 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 OCC has also assessed a $125 million civil money penalty against Bank of America for violations of law and unsafe or unsound practices relating to the bank’s administration of a prepaid card program to distribute unemployment insurance and other public benefit payments.
“Today’s action demonstrates the OCC’s commitment to holding our regulated institutions accountable for treating consumers fairly,” said Acting Comptroller of the Currency Michael J. Hsu. “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. Banks must pay attention to the financial health of their customers and conduct their activities in accordance with all consumer protection laws. When they don’t, we will act accordingly.”
The coordinated orders required the bank to provide remediation to harmed consumers whose access to unemployment benefits was denied or delayed. This included compensation for the financial harm suffered due to a loss of access to unemployment funds caused by, among other things, failing to timely reimburse consumers for unauthorized transactions and wrongfully freezing or blocking prepaid card accounts. The order also required the bank to take comprehensive corrective action to improve its risk management and oversight over the program as well as its contract review and approval process, and enterprise-wide complaints risk management.