SAN FRANCISCO (CBS SF/BCN) -- The judge presiding over a sprawling federal consumer class action lawsuit in San Francisco noted on Monday that he expected to enter a preliminary injunction against Bank of America based on allegations that it mishandled consumer complaints about stolen unemployment benefits.
The case arose after the federal government authorized massive unemployment benefits for workers who lost jobs in the pandemic.
In California, unemployment benefits are administered by the California Employment Development Department (EDD). That agency has a contract with BoA to distribute the benefits to beneficiaries via prepaid debit cards.
But with the program came massive fraud.
As BoA tells it in their court filings, the fraud came with "the deep involvement of sophisticated overseas criminal gangs, 'money mules,' users of the 'dark web,' prison inmates, and other malevolent groups and individuals."
According to the bank, it took "many steps to combat this unprecedented surge of criminal activity," including freezing accounts of suspected perpetrators and denying suspected claims. That activity, in the words of the bank, "also had an unintended but regrettably unavoidable impact on some legitimate EDD cardholders."
On Jan. 14, Jennifer Yick, a San Francisco resident and real estate professional, filed a federal lawsuit against BoA on behalf of herself and the "tens of thousands of those Californians who suffered the double indignity" of having their benefits stolen from the cards issued by BoA and having BoA respond "by freezing their accounts and depriving them of access to previously paid and ongoing benefits."
Yick's suit was later consolidated with a number of other suits against BoA arising from the same activity.
The plaintiffs alleged that the prepaid debit cards issued by BoA were of the old-fashioned "swipe" kind that do not employ the current chip technology. Swipe cards, according to the plaintiffs, are highly susceptible to fraud and "personal data on magnetic stripe cards can also be captured by hackers on a large scale."
According to the complaint, BoA's "unsecure cards led to rampant fraud, resulting in the ongoing loss of millions of dollars in benefits" to Californians who had lost their jobs.
The complaint says that between $11 and $31 billion in funds intended for California workers were stolen, though the great bulk of it was through fraudulent enrollment schemes rather than the "transactional fraud" that compromised the BoA cards.
While the complaint blames BoA for the insecurity of the cards, it saves its real venom for BoA's actions after the fraud occurred.
The bank is skewered, among other things, for "not answering the customer service phone lines it advises EDD debit cardholders to call; opening claims and then closing them so soon thereafter that a full review could not have been done; crediting funds and then later debiting them without notice to the EDD cardholder; failing to extend provisional credit to EDD cardholders; and freezing EDD cardholder accounts unaffected by fraud."
The complaint uses the term "maddening" to describe Yick's experience in dealing with BoA's customer service, recounting a litany of days punctuated by dropped calls, hang-ups, endless waiting, repeated misinformation and, in the end, no meaningful assistance.
Last Thursday, U.S. District Court Judge Vince Chhabria conducted a hearing on the plaintiffs' request for a preliminary injunction. He considered sworn declarations from approximately 40 individuals who had experiences similar to those recounted by Yick.
In an order issued Monday, the judge found that plaintiffs had shown a "strong likelihood of success" on their claims that BoA violated federal law 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 court found the same strong likelihood of success on the plaintiffs' claims that BoA "is systematically breaching its contracts with cardholders and violating California's Unfair Competition Law."
The court made several other findings that would support the grant of preliminary injunctive relief against BoA, but he did not actually issue an injunction. Instead he directed the parties to meet with U.S. Magistrate Judge Sallie Kim on May 26 and 27 and try to reach agreement on injunctive relief that "does not interfere with BoA's operations more than is necessary to sufficiently minimize the risk of innocent cardholders being improperly deprived of their benefits."
The judge also stated that he wanted to be sure that the proposed injunction "does not unduly hinder BoA from freezing the accounts of people who are likely to have obtained their cards through fraud."
The judge directed the parties to report back no later than May 28 with either a joint agreement or "competing proposals."
In a prepared statement, BoA commented, "We appreciate the judge's recognition of the difficult situation that EDD and Bank of America have faced given the pandemic and unprecedented criminal fraud as we continue to work to ensure legitimate claimants get the benefits to which they are entitled. We welcome the opportunity to discuss this further with plaintiffs and the Magistrate Judge."
Brian Danitz, one of the lawyers for the plaintiff class, said the size of the class is not known with certainty. He said it is certainly close to 50,000 or 60,000 people, but "it's probably more in the hundreds of thousands."
In his opinion, what persuaded the judge that relief was appropriate were the many declarations submitted to the court by the "ordinary people who have already been hit hard by the pandemic and are being hit again by Bank of America's policies and practices."
Danitz said, "People in the middle of the pandemic who were just trying to access their benefits should not be treated like criminals."
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