Federal regulators fined Bank of America $225 million for "botching the disbursement of state unemployment benefits at the height of the pandemic," the subject of a CNBC investigation last year.
The Consumer Financial Protection Bureau fined the firm $100 million and, in a separate order, the Office of the Comptroller of the Currency is fining the bank $125 million. The order requires Bank of America to engage in a process that will provide restitution for consumers whose accounts were frozen over what the CFPB called a "faulty fraud detection program."
Both fines were announced on Thursday.
"The bank failed these prepaid cardholders by denying them access to their mandated unemployment funds during the height of the pandemic, and leaving these vulnerable consumers without an effective way to remedy the situation," said Acting Comptroller of the Currency Michael Hsu. "Banks must pay attention to the financial health of their customers and conduct their activities in accordance with all consumer protection laws."
Bank of America had contracts with about 12 state agencies to deliver unemployment and benefit payments through prepaid debit cards. It now has just one, California, which recently extended the relationship. When the pandemic hit and the unemployment rate surged in 2020, these cards were the target of a great deal of fraud.
In a statement to CNBC, the bank said that, "the states were responsible for reviewing and approving applications and directing [BofA] to issue payments." As such, Bank of America said it helped the government to "successfully issue more than $250 billion in pandemic unemployment benefits to more than 14 million people and overall distributed more pandemic relief to Americans than any other bank."
"This action arose despite the government's own acknowledgement that the unemployment expansion during the pandemic created unprecedented criminal activity where illegal applicants were able to get states to approve tens of billions of dollars in payments," Bank of America said, adding that it "partnered with our state clients to identify and fight fraud throughout the pandemic."
As part of its investigation, CNBC profiled three victims, who were receiving unemployment insurance in California during the pandemic and said they initially found no recourse from the bank when their accounts were frozen. One single mother said she had to crack open her child's piggy bank to survive. Another victim choked up when telling CNBC how she left a grocery store empty-handed when her prepaid card was denied. A musician said he had to live in his car for a few weeks after his funds were stolen from his account. Ultimately, the bank credited all three for their missing funds.
CNBC's investigation found that states like California and Nevada saw an outsized share of so-called transaction fraud during the pandemic because, with few exceptions, their unemployment insurance was distributed through debit cards without chips, meaning there was a lower level of security.
Card experts told CNBC that prepaid government cards typically lack chips because they can be more expensive to produce.
The CFPB said in its release today that under the Electronic Fund Transfer Act, a financial institution must conduct a "prompt, reasonable, and timely investigation" when there's been an error related to transferring money, including prepaid cards.
"Taxpayers relied on banks to distribute needed funds to families and small businesses to rescue the economy from collapse when the pandemic hit, said CFPB Director Rohit Chopra. "Bank of America failed to live up to its legal obligations. And when it got overwhelmed, instead of stepping up, it stepped back."