Combined fines of $225 million were assessed Thursday against Bank of America by two federal regulators accusing the bank of botching disbursement of state unemployment benefits at the height of the coronavirus crisis.
In a release, the Consumer Financial Protection Bureau (CFPB) said it fined the bank $100 million for “automatically and unlawfully” freezing people’s accounts with a faulty fraud detection program, and then giving those persons little recourse when there was no fraud. The release also said the Office of the Comptroller of the Currency (OCC) fined the bank $125 million.
The CFPB said that in addition to the fine, its order requires Bank of America to provide redress to affected consumers which, it asserted, is expected to total hundreds of millions of dollars. That entails providing each affected consumer with a lump-sum consequential harm payment, to be determined through a methodology of financial harm consumers suffered due to the time their accounts remained frozen or blocked. The bureau said affected consumers will also have the opportunity to receive additional redress through an individualized review process.
The OCC said that, in addition to the fine, it has also ordered he bank to provide remediation to consumers harmed by the bank’s practices and violations of law. “Remediation includes compensation for the financial harm suffered due to a loss of access to unemployment funds caused by, among other things, failing to timely reimburse consumers for unauthorized transactions and wrongfully freezing or blocking prepaid card accounts,” the OCC said.
The bureau said it found in its investigation that the $2.5 trillion-in-assets bank engaged in unfair and abusive acts and practices that resulted in California residents, who relied on the bank to deliver to them unemployment and other benefit payments electronically, not receiving the payments. (The bank has a contract dating from 2011 with the state to deliver the benefits. The OCC noted that BofA also provided services to residents in Arizona, Iowa, Kansas, Kentucky, Massachusetts, Maryland, Michigan, North Carolina, New Jersey, Nevada, and South Carolina).
According to the CFPB, its investigations found that the bank replaced reasonable investigations with a faulty fraud filter, “left distressed consumers in the lurch,” and referred complaints to the state agency the bank knew was ill-prepared to address the consumer concerns.
The first finding, the CFPB said, related to the bank changing its practices for investigating prepaid debit card fraud on unemployment insurance benefit accounts. “Instead of conducting reasonable investigations, it implemented a fraud filter with a simple set of flags that automatically triggered an account freeze,” the CFPB charged. “This set a low bar to freeze the unemployment insurance benefits of many people, harming thousands of legitimate cardholders needing the money.” The agency also alleged the bank also retroactively applied its fraud filter to deny some notices of error submitted by prepaid debit cardholders that the bank had previously investigated and paid.
The second finding, the CFPB said, related to making it difficult for persons to unfreeze their prepaid debit cards or for people to report fraudulent use of their cards. “People with unemployment insurance benefit prepaid debit cards could not make reports online, or in person at bank branches,” the agency said. “People were on hold for hours every day for weeks trying to talk to someone at the bank. Furthermore, the bank told customers they had agents available 24 hours a day, seven days a week, when, in fact, it operated a more limited schedule for its claim call center.” The bureau charged that because the bank was the “strongly preferred provider” for California unemployment benefits, consumers were caught without any choice to switch providers.
The third finding, the CFPB said, was that the bank often sent consumers with complaints back to the California state unemployment department for verification in order to regain access to their benefits. “But the bank knew the department was stretched and unable to provide services; the bank met with the department dozens of times in the summer of 2020 and should have known it was essentially redirecting people into a black hole,” CFPB said.
The OCC said that in addition to its finding that the bank’s actions violated unfair or deceptive acts or practices under the Federal Trade Commission Act (FTCA), it also found “deficiencies in the bank’s administration of the program, including in operational processes, risk management, and internal controls. Beginning in 2020, these deficiencies resulted in violations of law and harm to consumers,” the OCC said.