SACRAMENTO, Calif. (KGO) -- A California State Assembly budget subcommittee held a hearing Tuesday with California's EDD and its banking partner, Bank of America, to gain clarity on the massive fraud plaguing the program.
Faiz Ahmad, Head of Global Transaction Services at Bank of America, noted in his opening remarks that unemployment insurance fraud is nationwide, and not unique to California.
"The size and scale of the California program attracted substantial fraud, including criminals who are fraudulently attempting to claim benefits. It is our assessment that there is sophisticated criminal network activity involved in this, as is being assessed by a third party specialist as well," said Ahmad.
Bank of America has been EDD's partner in benefits delivery for over a decade and also services other states across the country. Ahmad said that since the pandemic began, BofA has issued around nine million debit cards, involving more than $100 billion in benefits, to Californians in partnership with the EDD.
Ahmad said that BofA had been freezing accounts that showed indications the cardholder was not entitled to benefits.
"We believe the overwhelming majority of frozen accounts represent frauds that were stopped, representing hundreds of millions -- or billions -- or more in criminal activity," he said.
Officials pointed out that it was not traditional Unemployment Insurance that experienced the bulk of fraud. Though regular unemployment claims skyrocketed, it was the new federal benefits for self-employed or gig workers that were targeted by criminal organizations.
"These sophisticated fraud schemes targeted unemployment insurance agencies across the nation and honed in on the susceptibilities inherent in the federal Pandemic Unemployment Assistance program created by the CARES Act. 95% of our fraud is in this program," said newly-appointed Director of EDD, Rita Saenz.
On Jan. 14, 2021, a class-action lawsuit was filed against Bank of America, claiming the bank did not do enough to stop the scammers. The suit, Yick v. Bank of America, alleges that BofA did not properly secure its debit cards with chip technology, did not prevent data breaches on its accounts, and failed to reimburse victims as required by the bank's contract with the EDD.
Bank of America said it has improved customer service, including hiring more staff, reducing wait times on their phone hotline, and is restoring the money for those with legitimate claims.
"However, accounts may be frozen to protect recipient's funds from more fraud if there are additional signs of fraudulent activity. A new card may be issued at that time," the company said.
In a letter dated Dec. 7, 2020, Bank of America responded to inquiries by California state lawmakers and revealed it paid scammers hundreds of millions of dollars. The bank noted that most fraud stemmed from stolen cards and identity theft, though the bank said sometimes criminals would "double-dip" by first opening a fake claim, then later reported that their claim had been hacked -- leading BofA to put back the money for the "losses." It was fraudsters claiming fraud.
In response, BofA began to "clawback" the money it had sent to accounts to cover purported losses -- but in so doing, it also drained the funds of legitimate claims. Unemployed workers with BofA accounts told 7 On Your Side that their debit cards had been hacked, but when they reported the fraud to BofA, the bank first replaced the missing money -- then took it all back.
Even more painfully, Bank of America denied fraud victims' appeals to put the money back, and froze their accounts.
On Nov. 24, 2020, a bipartisan group of 59 state lawmakers wrote an open letter to Bank of America's CEO, Brian Moynihan. In the letter, the lawmakers demanded to know why the bank was draining the funds of those who held unemployment benefit accounts with Bank of America.
Some of the questions posed to Moynihan included:
The bank acknowledged the receipt of the letter, but failed to provide answers to those questions by the imposed December 1 deadline. A spokesperson for Bank of America told 7 On Your Side at the time: "We are working with the state and law enforcement to identify and take action against fraudulent applicants, protect taxpayer money and ensure that legitimate applicants can access their benefits."
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