Class Action: Calif. Unemployment Recipients Allege Bank of America Failed to Prevent, Address ‘Rampant Fraud’ [UPDATE]
by Erin Shaak
Last Updated on June 15, 2021
Yick v. Bank of America, N.A.
Filed: January 14, 2021 ◆§ 3:21-cv-00376
A lawsuit alleges Bank of America failed to prevent and address fraud involving unemployment insurance benefits provided through prepaid debit cards in California.
Electronic Funds Transfer Act California Unfair Competition Law California Consumer Privacy Act
California
Case Updates
June 11, 2021 – BofA Agrees to Provide Preliminary Relief
A judge overseeing the case detailed on this page, Yick v. Bank of America, N.A., has signed off on an agreement that will provide preliminary relief to proposed class members, i.e, those who the lawsuit is looking to cover.
In a preliminary injunction filed June 2, 2021, U.S. District Judge Vince Chhabria wrote that the plaintiffs and defendant had “worked together to craft preliminary injunction language that is designed to protect the class members from future harm while minimizing disruption to the defendant’s operations.”
As part of the injunction, Bank of America has agreed to a list of actions designed to benefit class members and developed in the interest of the public, the document states.
Among other relief, Bank of America will, according to court documents:
- Be prohibited from freezing accounts based only on the results of its initial automated claims fraud filter;
- Conduct and conclude investigations into allegedly unauthorized transactions before denying or closing claims or denying provisional or permanent credit to claimants;
- Provide a written explanation of the bank’s investigation and decision;
- Be prohibited from considering the results of its fraud filter in investigating or resolving unauthorized transaction error claims;
- Reopen any claims that were closed or denied based on the results of the claims fraud filter and resolve the claims within 45 days;
- Reopen any claim that it closed or denied on or after January 1, 2020 upon request of the cardholder;
- Establish toll-free numbers for consumers to directly access the “Claims Initiation Call Center” and “Fraud Call Center,” which will ultimately be available 24 hours per day, seven days per week; and
- Sufficiently staff the call centers so that consumers will not need to wait more than an average of five minutes 90 percent of the time before their call is answered.
This lawsuit and nine related actions were consolidated on June 10 into multidistrict litigation centralized in the Northern District of California.
January 25, 2021 – Bank of America Hit with Another Lawsuit
At least two lawsuits have now been filed over Bank of America’s apparent failure to prevent criminals from stealing unemployment insurance benefits granted to California residents amid the COVID-19 crisis.
Echoing the case detailed on this page, another lawsuit out of California federal court claims the security lapses of Bank of America debit cards issued to those receiving benefits from California’s Employment Development Department (EDD) are “Bank of America’s fault,” given the bank was well aware that the magnetic stripe technology used in the cards is far less secure than using chips and can easily be subject to fraud and misuse.
Moreover, the lawsuit claims Bank of America’s response to the widespread fraud has been “unhelpful and largely ineffective”—a far cry from the defendant’s purported promises of “Zero Liability” for cardholders and the bank’s “24/7” customer service, according to the case. Instead, those attempting to report fraudulent charges on their accounts have been forced to wait hours on the phone and then weeks without access to their unemployment benefits, the suit says. Per the case, Bank of America has continued to reap profits while failing to protect some of California’s most vulnerable citizens in the midst of a pandemic.
“As demonstrated herein, Defendant Bank of America has repeatedly failed to stop criminals from breaching Bank of America’s defective and outdated systems and controls, thus allowing the criminals to steal millions of dollars of EDD from needy and unemployed individuals,” the complaint reads. “While the unemployed persons who are one step away from being homeless are denied the benefits awarded them by the State, Bank of America continues to collect its large profits and revenues from its exclusive contract with California.”
The full complaint can be read here.
A proposed class action alleges Bank of America has failed to prevent and address “rampant fraud” experienced by California residents who receive unemployment insurance benefits through prepaid debit cards.
Despite the critical importance of unemployment insurance benefits amid the coronavirus pandemic, Bank of America has been either “unwilling or unable” to stop criminals from breaching its systems and “siphoning off millions of dollars” of Californians’ Employment Development Department (EDD) benefits, the 39-page lawsuit alleges. At the same time, the bank has wholly failed to address fraud claims and return the money to proposed class members pursuant to its “Zero Liability” policy, the complaint claims.
According to the case, Bank of America’s failure to protect Californians’ unemployment insurance benefits amounts to violations of a laundry list of state and federal laws.
“By failing to safeguard state benefits from fraud, failing to detect the fraud as it was happening, and failing so spectacularly at resolving the issues caused by these failures, Bank of America has violated the California Consumer Privacy Act, California’s Unfair Competition Law, and Regulation E of the federal Electronic Funds Transfer Act; has breached its contract with EDD cardholders; has negligently failed to warn EDD cardholders about the risks associated with its EDD cards and accounts; and has negligently performed its contract with the California EDD, among other violations of law,” the complaint scathes, asserting that the bank has caused “significant harm” to EDD benefits recipients in the midst of a global pandemic and economic crisis.
Bank of America entered into an exclusive contract with the California Employment Development Department in 2010 to issue prepaid debit cards with which EDD benefits recipients could access their funds, the lawsuit begins. The debit cards, as opposed to paper checks, became the default option for benefits distribution in the state in 2011, the suit says, and California remains one of the only states to not offer a direct deposit option for electronic unemployment benefits.
As part of its contract with California’s EDD, Bank of America promised to apply “the most rigorous fraud detection procedures” and provide “immediate response to emerging fraud trends,” the case says. According to the suit, however, the bank’s fraud monitoring and controls have proven to be “completely inadequate and ineffectual.”
Per the lawsuit, Bank of America has failed to store or transfer EDD cardholder information in a secure manner, leading to “a massive security breach” that has allowed millions of dollars in EDD benefits to be stolen through unauthorized transactions. Emphasized in the case is the defendant’s decision to issue EDD debit cards equipped with “vulnerable” and outdated magnetic stripe technology instead of industry-standard EMV chip technology, which Bank of America implemented for its consumer debit cards back in 2014.
“Despite the fact that Bank of America was well aware that EMV chip cards are significantly more secure than magnetic stripe cards, the company chose to issue EDD debit cards using old, vulnerable stripe technology to hundreds of thousands of the most financially vulnerable Californians,” the complaint states. “Bank of America did so notwithstanding its announcement that it would include chip technology on all consumer debit cards. Predictably, the unsecure cards led to rampant fraud, resulting in the ongoing loss of millions of dollars in benefits that EDD has issued to assist Californians who lost their jobs, including during the Covid-19 pandemic.”
In response to the apparent “epidemic of hack attacks” that occurred as millions of Californians applied for and received unemployment benefits amid the COVID-19 crisis, Bank of America has been “unhelpful and largely ineffective,” the lawsuit alleges. Despite promising through its “Zero Liability” policy that the bank would refund any money lost due to fraudulent transactions, Bank of America has made it “unreasonably difficult” for cardholders to file claims and often forces them to wait weeks or even months without access to their EDD benefits, according to the suit.
The case claims cardholders face long waiting times due to the defendant’s failure to adequately staff its customer service and fraud investigation departments. Even if they are able to get through to a live representative, some EDD recipients have allegedly reported that Bank of America has opened claims and then closed them so soon that an investigation could not have been completed. Other times, the suit says, the bank has credited funds and then later debited them without notice to the cardholder, failed to extend provisional credit to the cardholder as promised under the bank’s policies, and frozen EDD accounts unaffected by fraud.
“In short, as has been widely reported, many EDD cardholders have been forced to undertake an ‘unofficial full-time job trying to get the money back,’” the complaint alleges.
In October 2020, Bank of America froze an estimated 350,000 EDD accounts in “a desperate and heavy-handed effort” to mitigate the effects of the widespread fraud, the lawsuit continues. By late November, less than eight percent of the frozen accounts had been reactivated, the suit says.
The plaintiff argues that she and other EDD benefits recipients have received from Bank of America no communication concerning the ongoing fraud despite the bank’s promises to employ “rigorous” fraud detection and notification procedures. While the defendant has urged customers to report fraud by calling the number on their debit cards while touting its “Zero Liability” and “24/7” customer service promises, EDD recipients have learned that doing so offers “scant hope” of recovering their lost funds, the lawsuit says.
The case relays that 59 California lawmakers wrote a letter to Bank of America CEO Brian Moynihan in November 2020 over concerns regarding the ongoing fraud involving EDD debit cards and the company’s “inadequate response.” Bank of America replied by reiterating its commitment to its Zero Liability policy and noting that fraud is “not something that happens for most [EDD debit] cards,” the lawsuit says.
A Bank of America spokesperson said in a statement to Law360 that “[a]s California’s unemployment program faces billions of dollars in fraud, Bank of America is working every day with the state to prevent criminals from getting money and ensuring legitimate recipients receive their benefits.” The spokesperson noted that the bank has added thousands more representatives to respond to calls and investigate fraud claims, which has reduced EDD recipients’ wait times.
On December 3, 2020, California Assemblymember Lorena Gonzalez introduced a bill to require a direct deposit option for unemployment benefits in California, with the measure described as a “simple, commonsense solution to so many challenges we know California residents are facing.”
ClassAction.org’s coverage of COVID-19 litigation can be found here and over on our Newswire.
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