“Unfortunately, there has been billions of dollars of fraud during this pandemic in state unemployment programs, including California,” Bank of America said in a statement to CalMatters, urging those impacted to contact the bank. “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.”
For San Francisco Assemblymember David Chiu, a progressive Democrat who authored a 2019 public banking bill and has pushed to reduce state reliance on Wall Street, the confusion marks “another failure” by the state and its corporate vendors. The employment agency hinted it was the bank’s fault, insisting in an Oct. 29 statement that it “has no direct access to debit funds on any accounts” and that those impacted by card issues should contact Bank of America.
“They’re playing the blame game. Someone needs to take responsibility for this,” Chiu said. “I think we’re going to have to revisit that contract if BofA can’t provide the services it promised.”
The state agency said it will review all options this summer.
Banking on debit cards
In August 2011, California was still in the depths of the Great Recession. Unemployment was 12.1%, and the state was paying out $66 million a day in jobless benefits. But at the state agency, a major tech overhaul was underway after a new debit card contract with Bank of America.
At no cost to the state, the bank had begun rolling out prepaid cards to replace paper unemployment checks. It would be faster and more efficient, the EDD argued in a public report at the time, and much more accessible to Californians without bank accounts. The bank promised to share some revenue from merchant transaction fees with the state and guaranteed low fees for the unemployed: a few dollars for multiple ATM withdrawals, $10 for expedited or lost cards, and normal merchant fees whenever the card is swiped. “Terms are more favorable than most people have for their own personal bank accounts,” the 2011 report said.
The result was what United Way of California Communications Director Unai Montes-Irueste calls a “NASCAR card,” thanks to its flashy corporate logos for Visa and Interlink. Most other states have moved from paper checks to direct deposit or hybrid debit card and direct deposit systems. This past spring, millions of Californians received their federal coronavirus stimulus payments via direct deposit to personal bank accounts.
Still, California was far from alone in betting that debit cards would be a big part of the future of government benefits. Use of the cards exploded in the last decade at state, local and federal agencies as Bank of America, U.S. Bank, KeyBank, Comerica and others pursued more government contracts. By 2016, government agencies had paid out $146 billion in benefits through prepaid debit cards, generating $518 million in revenue for banks, the Federal Reserve reported. Today, 43 states use a combination of direct deposit and debit card systems, which consumer groups favor to reach unemployment claimants with the widest variety of financial situations.
Michele Evermore, a senior policy analyst at worker advocacy group the National Employment Law Project cautioned that banks acting as middlemen in debit card contracts can sometimes divert funds from workers — a missed opportunity for economic stimulus. “It may seem like a 2% fee here and a 2% fee there doesn’t amount to much, but in the aggregate, it really does,” Evermore said.
In California, paper checks are still available by request, and Bank of America notes that debit card customers can transfer the money from the card to their own bank accounts — both time-consuming alternatives, said Lauren Saunders, associate director of the National Consumer Law Center. In a 2013 report, the organization found that despite the relatively consumer-friendly terms in the state’s Bank of America unemployment contract, Californians paid almost $1.8 million in fees in a year.
Bank of America referred questions about fees generated by its California unemployment contract to EDD. The employment agency has not yet responded to a CalMatters request for records of revenue and fees related to the debit card contract.
Debit card problems pile up
In the meantime, the stories of Californians dealing with debit card problems continue to pile up. For Santa Maria single mother Aimy Onan, a drained account meant falling behind on rent and moving into a shared bedroom with her daughter in her ex’s home with a new girlfriend. For furloughed Disney candy maker Julie Hansen, a negative $12,000 balance threatened her ability to care for her autistic son. For Demarcus Sparks, who was self-employed before the pandemic, a frozen debit card led to a Greyhound trip from L.A. to stay with his mom in Georgia for fear of ending up in a shelter.
“They treat you like trash,” said Paul Dease, a 52-year-old antiques dealer in San Diego County, who has been locked in a dispute with Bank of America over $1,000 withdrawn from his account without notice. “How many people have the same story I have, that have lost $1,000 or $800 and haven’t gotten it back?”
That much remains unclear. Chiu said lawmakers also have yet to receive updated account information, or answers about the “mind boggling” omission of microchips in the cards to root out fraud.
Bank of America declined to comment on the security of California’s unemployment debit cards. But bank personnel also say their own outdated customer service systems have contributed to claimants’ financial purgatory. The bank’s internal processes for reporting and investigating unemployment debit card complaints have led to long delays and shifting timelines, two workers told CalMatters, as they juggle antiquated technology and shifting corporate scripts.
“We’re actually no longer allowed to tell them a timeframe, because we have no clue,” said one Bank of America customer service worker, who asked to remain anonymous since they were not authorized to discuss the matter. “Every day, I talk to 30 people with the same story. I just pray for them after my shift, honestly.”
A field day for fraud
If the world wasn’t paralyzed by a deadly pandemic, it might look like Matthew Hoffman has been traveling quite a bit. His Bank of America unemployment card ledger shows transactions and ATM withdrawals in Alabama, Modesto, Sacramento, Tennessee, Connecticut and even a series of overseas charges.
But Hoffman, a former Comcast employee who has been out of work since a stroke last year, said he’s never used the card in any of those places. In total, he saw almost $7,000 disappear. He said one bank representative told him the fraud dispute he filed had been closed without investigation. Another said it was reopened. Finally, he was told that a credit would arrive on Nov. 10. It didn’t.
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How Bank of America Helped Fuel California's Unemployment Meltdown - KQED
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