Bank of America Faces Another Lawsuit Over Calif. Unemployment Benefits Fraud, Account Freezes

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Another proposed class action has been filed against Bank of America over its alleged failure to protect the security of debit cards issued to California unemployment benefits recipients.

According to the lawsuit, California residents receiving benefits from the state’s Employment Development Department (EDD) are each provided with a Bank of America-issued debit card through which they can access the funds. The case alleges, however, that the bank has responded to “systemic failures in its security measures” by removing funds from recipients’ accounts, revoking credits or blocking recipients’ access to their accounts.

“As a result, tens of thousands of Californians were deprived of access to their only source of income during a global pandemic,” the complaint attests.

The lawsuit alleges that widespread fraud affecting EDD debit cards as thousands of Californians were out of work during the coronavirus pandemic was rooted in Bank of America’s failure to properly secure the debit cards with an “EMV” chip. According to the case, all EDD cards issued prior to 2021 contained “obsolete” magnetic-stripe technology instead of EMV (Europay, Mastercard, and Visa) chips, which generate unique transaction data each time the card is used to make a purchase. Because magnetic-stripe cards use the same transaction data each time a card is used, the cards are “extremely easy for thieves to duplicate,” the suit explains.

Despite the security concerns associated with magnetic-stripe technology, Bank of America allegedly failed to include “far more secure” EMV chips on EDD debit cards, which the case claims are the only cards issued by the bank without such technology. As a result, the suit says, the EDD cards’ security vulnerabilities became a target in 2020 for “large numbers of individuals” who used cloned cards to make fraudulent ATM withdrawals and unauthorized purchases.

As the case tells it, Bank of America responded to the uptick in fraudulent transactions by blocking nearly 350,000 Californians’ access to their unemployment benefits in October 2020. Moreover, the suit alleges, the bank reversed credits to unemployment recipients’ accounts that it had previously granted, causing the accounts to fall into a negative balance and preventing the individuals from accessing any of their funds.

The three plaintiffs, California unemployment benefits recipients who reported fraudulent transactions relating to their EDD accounts, claim to have lost access to their funds as a result of Bank of America’s conduct. Per the case, two of the plaintiffs received credit for the fraudulent transactions from Bank of America only to have the bank later remove the funds and cause their accounts to fall into a negative balance. The third plaintiff alleges Bank of America froze her account in September 2020 after an unauthorized party made eight $1,000 withdrawals. According to the suit, the bank has yet to reimburse the withdrawals or unfreeze the plaintiff’s account, leaving her without access to $21,000 EDD has since deposited into her account.

In June, a judge overseeing a similar case signed off on an agreement through which Bank of America will provide temporary relief to those who the lawsuit is looking to cover. The preliminary injunction will, among other relief, dictate when Bank of America can freeze an account and ensure timely investigations are conducted into fraudulent transactions. More information on the agreement can be found in an update on this page.

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