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 Assemblymember Jim Patterson, a Republican from Fresno. "This is becoming far too familiar. EDD just does not tell us what's going on."
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 Assemblymember Wendy Carrillo, a Democrat from Los Angeles. "Its contents are not secret. They belong to the public record."
Lauren Saunders, associate director of the National Consumer Law Center, has studied unemployment debit card contracts including the one Bank of America has in California. She found that 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 benefit money — but that California's revenue sharing agreement 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."
CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.