Bank of America said Monday it is likely California paid at least $2 billion in fraudulent unemployment benefits, offering a glimpse of the potential size of the problem that has plagued states across the country during the pandemic.
The $2 billion estimate is less than 2% of the $110 billion California has paid in unemployment benefits since March when a statewide stay-at-home order caused millions of people to lose their jobs. But Bank of America said the scale of fraud in California was unique when compared with other states, having reached “unprecedented levels.”
Bank of America contracts with California to issue unemployment benefits via debit cards. From March 1 to Nov. 21, the bank issued more than 8.2 million cards containing a total of $105.1 billion.
State officials had previously asked Bank of America to freeze 345,000 accounts because of suspected fraud. In a letter to state lawmakers on Monday, Bank of America said its assessment of those accounts revealed only “a very small percentage” was legitimate, estimating fraudulent activity “on the order of approximately $2 billion.”
In addition, the bank identified 295,000 other suspicious accounts it says California should investigate. It said those accounts were flagged for several reasons, including instances where hundreds of debit cards were sent to a single mailing address or multiple cards were associated with a common phone number or email address. At least 76,000 of those cards were sent to people in states that do not border California.
“Although in our experience red flags such as these and others are highly correlated with the risk of fraudulent activity, the application of these filters will inevitably impact some legitimate claimants,” Brian Putler, Bank of America’s director of California government relations, wrote in a letter to state lawmakers. “(California) and Bank of America therefore must work to investigate and resolve matters for recipients who are inadvertently impacted by the measures necessary to weed out fraudulent activity.”
Crystal Page, spokeswoman for the California Labor and Workforce Development Agency, said Gov. Gavin Newsom “has made it clear we must weed out all abuse of our unemployment system,” adding he recently assembled a task force “to investigate fraud and hold people accountable.”
In addition to the accounts state officials asked Bank of America to freeze, the company also locked 62,000 additional debit cards on its own because it said those accounts “triggered various fraud alert indicators" that federal law requires the bank to monitor.
That has frustrated some state lawmakers, who say some of their constituents have had their legitimate jobless benefits frozen and Bank of America was not responding to their requests to release the money.
“There was a complete lack of responsibility taken by Bank of America,” said Assemblyman Phil Ting, a Democrat from San Francisco. “We didn’t see what actions they were taking to address the legitimate issues that my constituents are bringing forward.”
Putler said the bank works with the state to tell people when their accounts have been frozen. But they said it is ultimately the state's responsibility to verify the identities of those people. Once confirmed, Putler said it takes two to three business days to unlock their accounts, adding the company has unfrozen 54,000 accounts since Sept. 1 at the state's direction.
Page said the Employment Development Department is working with Bank of America to review debit card accounts, saying it is verifying identities on legitimate claims. She said if the bank doesn't unlock the legitimate accounts, the state will send checks to the claimant “because we know how critically important these unemployment benefits are during this challenging time."
California has struggled to process more than 16 million unemployment claims since the pandemic began — an unprecedented volume that has overwhelmed the state agency. The Employment Development Department has been under immense pressure to work through a backlog of pending claims that at one time totaled more than 1.6 million people.
But its efforts to quickly process claims, coupled with more permissive federal programs, makes the system more vulnerable to fraud. Last month, a group of local and federal prosecutors revealed the state had approved benefits for more than 30,000 prison inmates, including 133 on death row.
Last week, the state confirmed those fraudulent benefits to prisoners total at least $400 million. It’s unclear if that money is part of the estimated $2 billion in fraud that Bank of America has identified.
State lawmakers, who returned to Sacramento on Monday to start a new legislative session, introduced multiple bills to address the problems at the agency. A proposal from Democratic Assemblywoman Lorena Gonzalez would require California to offer an option of receiving unemployment benefits via direct deposit instead of a debit card to reduce the potential for fraud.
Republican Sen. Shannon Grove says she will author a bill requiring the state to cross-check unemployment claims against state prison records.
“(Gov. Gavin) Newsom’s administration was told months ago to take action to prevent this kind of fraud and their inability to do anything has now placed a potential $2 billion screw-up on the backs of our struggling businesses,” Grove said.
In September, the Employment Development Department stopped accepting new claims for two weeks so it could install new software that can more easily confirm people's identity. The agency has said the new software is better at rooting out fraud.
