Thursday was an expensive day for Bank of America. It ran up a total of $250 million in fines for botching the payout of state unemployment benefits during the COVID pandemic.
The bank automatically and unlawfully froze consumers' accounts with a faulty fraud detection program, and then gave them little recourse when there was, in fact, no fraud, according to the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC)
Today’s CFPB order requires Bank of America to undertake a process that is estimated to result in hundreds of millions of dollars in redress to consumers. In a separate order, the Office of the Comptroller of the Currency (OCC) is also fining the bank $125 million.
“Taxpayers relied on banks to distribute needed funds to families and small businesses to rescue the economy from collapse when the pandemic hit,” said CFPB Director Rohit Chopra. “Bank of America failed to live up to its legal obligations. And when it got overwhelmed, instead of stepping up, it stepped back.”
Contracts with state agencies
The problem grows out of contracts the bank has with various state agencies to deliver unemployment and other benefit payments to consumers electronically through prepaid debit cards and accounts.
For example, since 2011, Bank of America has had an exclusive contract with the State of California to deliver unemployment and other benefit payments to California consumers electronically through prepaid debit cards and accounts.
Under the Electronic Fund Transfer Act, consumers are protected when they use electronic methods to transfer money; this includes prepaid cards. Protections include that after a consumer contacts the financial institution that there has been an error, the financial institution must conduct a prompt, reasonable, and timely investigation.
When the COVID-19 pandemic hit in early 2020, the unemployment rate surged. Millions of consumers sought unemployment insurance benefits. The surge included a great deal of fraud. There was a significant amount of identity theft that affected eligible cardholders with legitimate prepaid debit card accounts but there were also a significant number of criminals who applied for and began receiving unemployment insurance benefits who filed false error claims to access additional funds.
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.
It's not BofA's first run-in with federal regulators. The bank, second-largest in the U.S., has previously been sanctioned by the CFPB. In 2014, the CFPB ordered Bank of America to pay $727 million in redress to its victims for illegal credit card practices. And in May of this year, the CFPB ordered Bank of America to pay a $10 million civil penalty over unlawful garnishments.