Court Bars Bank of America From Freezing Unemployment Benefits for Californians

Bank of America can no longer use an automated system to freeze the accounts of Californians who relied on unemployment benefits to get through the pandemic because of suspected suspicious activity. 

(AP Photo/Steven Senne, File)

(CN) — A federal judge ordered one of the nation’s largest banks to stop freezing accounts Californians rely on for unemployment and disability payments.

U.S. District Court Judge Vince Chhabria granted preliminary injunction Tuesday to a class of plaintiffs who say Bank of America violated federal law and broke provisions in its exclusive contract with the state when it froze the accounts of people who received unemployment or disability payments on the bank’s prepaid credit cards due to suspicious activity. 

“The class is comprised of people who depend on unemployment benefits to get through the pandemic,” Chhabria wrote. “As the plaintiffs’ evidence shows, continued denial of these benefits will seriously hinder the ability of many class members to feed their families and keep a roof over their heads.”

Individuals who report unexplained charges to their accounts had their accounts frozen by the Bank of America, sometimes automatically, which prevented them from using the funds to purchase essentials such as food and shelter, according to the lawsuit. 

Chhabria found the plaintiffs have a high likelihood of prevailing on these claims.

“The plaintiffs have demonstrated a strong likelihood of success on their claims that Bank of America has violated, and continues to violate, the Electronic Fund Transfers Act by failing to conduct an adequate, good faith investigation when cardholders report unauthorized charges, and often simply freezing cardholder accounts based on a faulty screening process,” the judge wrote in the ruling, which had been drafted by the plaintiffs and Bank of America with the help of U.S. Magistrate Judge Sallie Kim.

The preliminary injunction means the bank will have to cease certain practices while the remaining issues are adjudicated, including freezing accounts based on the automated fraud finder, denying claims of fraud reimbursement based on the automatic filter and denying those same claims without an investigation or a written copy of the bank’s rationale. 

Bank of America must reopen claims it denied based on the automated service, establish and staff a call center so customers can call and resolve their issues with a person while establishing credit for some card users to be able to access funds while the disputes are being resolved. 

The plaintiffs claim one of the main reasons there has been such a large number of fraudulent charges on the cards issued by California Employment Development Department is because Bank of American has failed to institute basic security safeguards. 

“Not only did the bank fail to implement basic security measures, it then treated EDD cardholders who were the victims of fraud as if they were the criminals, often freezing them out of their accounts for months on end,” said attorney Brian Danitz, lead co-counsel for the class. 

Several plaintiffs wrote about not having money to be able to pay their mortgage, basic bills or put food on their table for children. 

Compounding the problem, the bank failed to adequately staff call centers so that many families were left without answers for months, according to the plaintiffs.

“The harm being suffered by the class members is irreparable,” Chhabria wrote.

Bank of America said its automatic filters actually worked fairly well considering the avalanche of fraudulent claims that struck the state and the bank during the process. 

“As California’s unemployment program faced billions of dollars in fraud, Bank of America’s No. 1 goal always has been to ensure legitimate recipients could access their benefits,” the company said in an emailed statement. “With this agreement, we are committing to additional measures to help those entitled to unemployment benefits receive those benefits as quickly as possible.”

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