Setting up direct deposit for unemployment benefits could take years, EDD says

ByMichael Finney and Renee Koury KGO logo
Thursday, October 28, 2021
Setting up direct deposit for EDD benefits could take years
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Setting up direct deposit for unemployment benefits could take years, the EDD said in a hearing this week.

SACRAMENTO, Calif. (KGO) -- State lawmakers were furious when the Employment Development Department renewed its troubled partnership with Bank of America to deliver unemployment benefits.

The EDD renewed the contract for up to two more years in spite of rampant fraud on EDD debit cards and thousands of frozen accounts.

It left many workers without their unemployment benefits during the worst of the pandemic.

Now the EDD says it's finally setting up a system to get around all that trouble, with direct deposit of benefits.

But when?

RELATED: California's unemployment fraud reaches at least $20 billion

At first, debit cards seemed like a good way to deliver benefits since not everyone has a bank account. But during the pandemic, hackers were draining money off the cards and the bank was freezing accounts to stop fraud but blocking money to thousands of legitimate workers. Now the EDD says it will join most other states by offering direct deposit for benefits. However, it will be years in the making.

The EDD is under pressure to block fraud by whisking money directly to those who are entitled to benefits. During the pandemic, hackers took advantage of a debit system many said was too lax. The debit cards lacked security chips. Scammers also were stealing the cards out of the mail and cashing them in. At the same time, other fraudsters were filing phony EDD claims, then cashing in benefits, and claiming their cards were hacked.

Stories were pouring in to police, authorities and news organizations. Unemployed workers realized hackers had drained their EDD debit cards. And when they filed a claim, Bank of America restored their funds, only to take the money back out again, and then freeze their accounts entirely

"And to have $7,000 taken away, it hurts," said Diane Davis of Oakland.

"They took $16,000 out of my account. Where did it go?" asked Michael Conant of San Francisco.

"I had $4,000 and now it's gone," echoed Katherine Hauser of San Francisco.

RELATED: EDD admits to waiting on man's unemployment claim so long, it was rejected

Bank of America began summarily denying claims of fraud on EDD debit cards, since fraudsters were making phony claims for reimbursement, on debit cards they received for their fraudulent claims. It was a trend BofA called "double dipping" fraud. However, many legitimate workers with valid claims were swept into the crackdown, and never received the benefits they deserved.

"I'm the victim and I'm being treated as a criminal," San Francisco resident Annmarie Garvey said..

In spite of all the turmoil, the EDD renewed the B of A contract for up to two more years. And at a hearing Monday, state lawmakers asked EDD for a solution many have long been advocating.

"Are we going to allow direct deposit so we can avoid the fiasco that we've been dealing with since the pandemic?" Assemblyman Rudy Salas (D - Bakersfield) asked EDD director Rita Saenz at a hearing on EDD problems.

"Yes. Eventually we will. But it could take years," Saenz replied.

RELATED: EDD still won't pay benefits long after man verifies ID, wins appeal

Saenz said she is asking banks for proposals to partner with EDD and set up a direct deposit program. However she said it won't happen anytime soon -- even though most states do offer it already.

"It's a little frustrating 'cause you see places like Maryland, Massachusetts, Washington, these other states -- they are able to do the direct deposit right away," Assm. Salas said.

Saenz said nonetheless, the process is complicated.

"While other states have direct deposit, I can guarantee you it did not happen overnight,'' Saenz rsaid. "Doing these contracts for direct deposit are complicated, there are all kinds of federal rules and regulations."

After the fiasco with fraud this year, the EDD director said banks are reluctant to team up with the EDD.

"There are not a whole lot of banks out there that want to do this business," Saenz said.

RELATED: Should EDD reopen unemployment offices? Right now they're shut for good

Even Bank of America says it wants out of the current contract as soon as possible. B of A says it lost more than $200 million to fraud last year. It now faces a class action lawsuit by unemployed workers who lost their benefits to debit card fraud.

Yet B of A will still be handling the EDD debit cards for at least another year.

"What they have done is renew a contract that has made Californians' lives miserable," Assemblyman Jim Patterson (R - Fresno) said after the EDD signed the extension in July..

"I'm trying to understand the rationale for EDD to renew the contract with Bank of America," Assm. Salas said.

"We extended it because we did not want to see a disruption in services," Saenz replied.

It's important to note that you can have your benefits sort of indirectly deposited to your own bank account. If you are receiving EDD funds, the bank offers a way to transfer the benefits through B of A and into your own account.

Take a look at more stories and videos by Michael Finney and 7 On Your Side.

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