How EDD and Bank of America Make Millions of Dollars on California’s Unemployment

She didn’t know it at the time, but last September was when everything started to unravel for Julie Hansen. It was late in the month when the furloughed Disneyland candy maker noticed a string of suspicious charges totaling $12,222.23 on her state-issued Bank of America unemployment debit card.

First, the money was credited back to her account. Then it disappeared again, setting in motion a chain of events that left her and her son homeless.

Behind the scenes, California’s Employment Development Department and longtime debit card contractor Bank of America were scrambling to rein in rampant fraud. They froze some 350,000 unemployment accounts around the time Hansen’s card was cut off.

The catch: while Hansen and other out-of-work Californians were left in financial purgatory unable to access unemployment money, a Great Recession-era contract ensured that the state and the bank kept raking in millions of dollars in merchant fees whenever debit cards still in circulation were swiped.

In September, the EDD made $5.2 million on a debit card revenue sharing agreement with Bank of America—a sizable chunk of the $22.5 million the state raked in from March to October, according to public records requested by CalMatters.

How much money did Bank of America make on its end of the deal? The state says it doesn’t know, and the bank won’t say, despite a contract requirement to report unemployment debit card fees and revenue each month. “EDD does not track BofA’s revenue,” the agency told CalMatters. The bank declined to comment on its unemployment revenue and financial reporting.

“This is essentially a nifty little hidden kickback scheme,” said Assemblyman Jim Patterson, a Republican from Fresno. “This is becoming far too familiar. EDD just does not tell us what’s going on.”

Basic Questions Unanswered 

In recent weeks, California lawmakers rushing to introduce new unemployment reform bills have struggled to get basic questions answered about when and how jobless workers are paid—and who profits in the process.

Under Bank of America’s exclusive 2010 unemployment debit card contract with the state, which was first detailed by CalMatters, the Employment Development Department does not pay the bank directly for its financial services.

Instead, the two parties split revenue on merchant transaction fees when the cards are swiped, and the bank charges limited consumer fees for things like ATM use or rush shipping on new debit cards. The contract specifies only that the state’s share of the fee revenue will “assist in offsetting program costs.”

The bank was supposed to report at least monthly on any fees earned and its average revenue, according to the contract provided by the state. But when CalMatters asked for those reports, the state said it did not have any records on bank fees. The agency said only that Bank of America made $37.8 million in transaction fees during 2013—a figure disclosed as part of a bond estimate in a year when California paid out a sliver of the record $111 billion in unemployment benefits from March to December last year.

“I’m stunned that EDD doesn’t know,” Patterson said, “and I’m not sure that I believe that they don’t know.”

Bank of America said it suspended some consumer fees, including rush shipping charges, in the spring. The bank declined to comment on transaction fees. Faiz Ahmad, managing director of transaction services for Bank of America, told lawmakers last week that despite any money the bank may have made during the pandemic, it “lost hundreds of millions of dollars on the contract” last year due to fraud and a need to hire more customer service workers to respond to complaints.

“Bank of America’s contract with EDD belongs to California’s taxpayers,” said Assemblywoman Wendy Carrillo, a Democrat from Los Angeles. “Its contents are not secret. They belong to the public record.”

Lauren Saunders, of the National Consumer Law Center, has studied unemployment contracts including the one Bank of America has in California. She said many states are “not paying any attention” to fees earned by banks—a lack of transparency that makes it hard to know how much unemployed workers are paying to use their benefits—but that California’s revenue sharing deal appears to be unique.

“Banks have to make money. They are selling a product,” Saunders said. “What’s more unusual is the state making money. That’s because California is such a big market and there was so much interchange revenue that the bank was willing to share some with the state, but that money should go back into making sure that people aren’t paying fees and to making sure that people get the money where they want to get it.”

A Long Fight

As fall turned to winter, Hansen tried everything she could think of to get her missing unemployment money back. She spent hours on hold with the bank, then called the state when she was told it was an identity verification issue.

After waiting hours longer to get through to the state agency, and often hung up on in the process, she was told that she needed to call the bank. She called politicians and posted online, and briefly saw the account reopened just long enough for another $672 to post to the account, only to have the card frozen again.

By December, it was too late. Hansen and her son slept in her Fiat or stayed with friends after they were forced to leave their two-bedroom rental in the Inland Empire to avoid eviction proceedings. There were no Christmas presents that month.

“Nobody helps. They blame it on each other,” Hansen said. “I don’t know if they’re trying to make it to where I just don’t fight anymore, but that’s $13,000.”

Stories like Hansen’s, where both the state and the bank have added to confusion, make the prospect of unraveling California’s unemployment crisis more daunting. In Sacramento, both Democrats and Republicans have proposed legislation to add a direct deposit option for claimants, crack down on fraud and strengthen oversight. Bank of America’s current contract ends this summer.

In addition to refunding legitimate unemployment claimants caught up in the mess, Patterson worries about tax bills and unsuspecting people asked to repay the government for benefits paid out to fraudsters.

He said lawmakers are weighing requirements for the agency to act fast.

Meanwhile, unemployment claimants accused Bank of America in a class-action lawsuit filed last month of putting them at risk of debit card fraud.

The bank argues that the “vast majority” of fraud during the pandemic involved fraudulent unemployment applications that the state failed to catch, rather than debit card fraud. While lawmakers and the state auditor press for more details on up to $31 billion in total fraud, Saunders said it’s also possible that federal watchdogs like the Consumer Financial Protection Bureau could get involved if the bank fails to provide claim documentation or timely credits for fraud as required by law.

“If they’re found not to have complied,” Saunders said, “then the bank would be responsible to reimburse the consumers.”

With no full reopening in sight for Disneyland, Hansen has taken to making boxes of toffee, chocolate strawberries and peanut brittle in a friend’s kitchen for anyone who still has $10 or $20 to spend.

She was mailed one paper unemployment check for $1,000 in January—enough to pay for her son’s medication and the car they were living in—and the family recently moved into a rented room while she fights for the rest of the missing money.

Hansen says, “There’s gotta be an easier way.”

8 Comments

  1. This is how corporatism enables monetization of poverty.

    Well, just one way, there are many others…

    This is what you asked for, this is what you propagandized for, this is what you begged for.

    State power does not equal people power.

    Usually is means oligarch power.

    Chumps!

  2. BofA has a “contract” that doesn’t expire until summer? Sounds like they breached it long ago.

    Newsom is incompetent as an executive. No Silicon Valley corporation would tolerate his performance. He should’ve nominated himself as senator. Then he could just make speeches and vote with the majority. All he can do now is resign to save the state the cost of a recall election.

  3. Our children were born 6 years apart in the 1990s. Applying for California leave for a “disability” (pregnancy is considered a “disability” rather than a normal life event) for the first child was annoying and required repeated phone calls to find a clear line but, after connecting, money was deposited into our bank account. By the time the 2nd child was born, in the late 1990s, the process had shifted to using a bank credit/debit card – which came with monetary hits each time a person performed certain kinds of ordinary monetary transactions. Outraged we managed, by jumping through online obfuscated hoops, to have deposits once more placed directly into our bank account and thereby avoid fees on our cash. (We all already pay into the CASDI system so there should be no need for the state or anyone to levy fees.) It saddens me to hear that this idiotic system is still in place.

  4. Unfortunately there is still a second chance at Senator, with DiFi barely functioning, depending on who you ask. DiFi’s exit plan has likely been drawn up by Nancy and others, and would be implemented when the recall gets validated. DiFi steps down, Newsom appoints himself, and the rest of the Country hates California a lot more.

  5. Thank you SE for pointing that out. This is an incredibly hostile system against the recipient drawing unemployment. You were doing the exact thing most would do in trying to prevent your payment from being consumed by fees, only to be stymied by BOA whose interest relied on those fees.

    This BS needs to stop. Apparently the debit card scheme is not secure at all, if Hansen in the article, and millions of others are having their debit cards emptied. How would their newly-issued cards be compromised? Are bank employees selling debit card information? It seems important to get to the bottom of this now.

  6. Why do our elected representatives defer, demur, kowtow and prostrate and humiliate themselves in dealing with the Bank of America? Why do they give the bank the benefit of the doubt and cover for its role while point accusing fingers at their own public sector (e.g. the Employment Development Department, EDD)? The bank is a state vendor and should be dealt with like any other state vendor. The state contracts for the goods or services and if the vendor can’t deliver or answer to state needs, take state money (our tax dollars) and go elsewhere.

    The real failing here is the neoliberal defunding of state operations, institutions and programs over the past half-century, combined with private sector “partnerships” that amount to different ways of leaching public funds. The corporate Democrats are directly responsible for the dilapidated state and weak capacity of the EDD. Furthermore, as SE Hinton points out above, state agencies were (and are) quite capable of transferring funds destined to beneficiaries by simply transferring funds from state bank accounts (at private banks) to recipient bank accounts without private bank debit cards.

    The real solution here is the establishment of a public bank that fulfills all the state’s banking needs for a fraction of what the Bank of America or Wells Fargo or others presently charge the state. You know, like the 101-year-old Bank of North Dakota (https://bnd.nd.gov/history-of-bnd/). Just a year ago, the state of California formally and legally enabled the establishment of public banks (https://www.latimes.com/business/story/2019-10-02/public-banks-can-be-formed-under-bill-signed-by-newsom).

    If we had a public bank at the state level, the hundreds of billions that pass through Sacramento (https://lao.ca.gov/Publications/Report/4263) could be managed and mediated without paying tens of millions in fees and commissions to private bank fraudsters (https://www.justice.gov/opa/pr/bank-america-pay-1665-billion-historic-justice-department-settlement-financial-fraud-leading; https://www.justice.gov/usao-cdca/pr/wells-fargo-agrees-pay-3-billion-resolve-criminal-and-civil-investigations-sales; https://www.latimes.com/business/story/2020-01-27/wells-fargo-scandal; https://www.lexisnexis.com/LegalNewsRoom/financial-fraud-law/b/blog/posts/jpmorgan-chase-defrauded-100-000-people-california-alleges).

    Such a bank would, furthermore, give the state much broader fiscal space to embark on healthier and heftier levels of public investment and, like the Bank of North Dakota, afford greater revenue stability and fiscal maneuverability allowing it to finance its debt (https://staging.sanjoseinside.com/news/as-community-lenders-sell-out-or-go-under-can-publicly-owned-banks-restore-local-control/;https://staging.sanjoseinside.com/opinion/op-ed-public-banking-can-recharge-south-bays-economy/).
    A public bank would also serve a development function by eliminating capital allocation decisions based solely on private profit considerations.

    We need more affordable housing; the public bank will fund such projects. We need more and better public infrastructure: public banks will fund this. We need better school facilities and more public hospitals and clinics: public banks can and will fund these too. We need environmental protection, restitution and reparation; the public bank can lead the way. The state can directly produce what we need, when we need it and can finance it without bankers and the wealthy weighing in and taking a cut (you know, like fire departments).

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