Just how dysfunctional is California’s unemployment department?
Apparently so dysfunctional that Bank of America, which since 2010 has had an exclusive contract with the state to deliver unemployment benefits through prepaid debit cards, wants to end the contract — even though the Employment Development Department just renewed it for another two years.
Bank of America has been sued for failing to provide sufficient protections for unemployment payment debit cards after thousands across California have fallen victim to fraud. Image via iStock
The news that Bank of America wants to get out of the EDD contract, first reported by ABC 7 in San Francisco, comes about a month after a federal judge — as part of a class-action lawsuit first reported by CalMatters — ordered Bank of America to stop using an automated fraud filter that blocked tens of thousands of legitimate claimants from accessing their benefits after they reported suspicious account activity. The bank said it received 230,000 claims of debit card fraud from October 2020 through March 2021.
Bank of America’s desire to end the contract is striking, given that both the bank and the state rake in merchant fees whenever an unemployment debit card is swiped.
EDD has pocketed millions in fees amid the pandemic: It earned more than $47 million from March 2020 through April 2021, even though the claims of more than 1.1 million jobless Californians remain in limbo.
However, Bank of America told state lawmakers it lost “hundreds of millions” of dollars on the contract last year as it scrambled to respond to California’s rampant unemployment fraud, which experts say could total upward of $31 billion.
Bank of America said in a statement: “We have advised the state that we would like to exit this business as soon as possible.”
Ultimately, the cost of California’s unemployment fraud will likely fall on taxpayers. And businesses will likely shoulder the staggering weight of California’s unemployment insurance debt, which experts estimate could reach $26.7 billion by the end of the year.
Meanwhile, EDD is still struggling to answer the millions of calls it receives each week — so much so that California’s 80 state assembly members were just given the green light to hire two staffers each to handle EDD problems.
Emily Hoeven is a writer with CalMatters.