Bank of America is fined $225 million for botching pandemic benefits

Regulators are fining Bank of America $225 million for bungling the distribution of unemployment benefits amid the pandemic, and are ordering the bank to compensate more than 100,000 people in a dozen states as a result.

The Office of the Comptroller of the Currency on Thursday ordered the nation's second-largest bank to pay $125 million and compensate those hurt by unfair and deceptive practices related to a prepaid card program. The Consumer Financial Protection Bureau also fined Bank of America an additional $100 million, accusing it of "botching the disbursement of state unemployment benefits at the height of the pandemic."

At issue: programs administered by Bank of America that largely used prepaid cards akin to a debit card on behalf of 12 states: Arizona, California, Iowa, Kansas, Kentucky, Massachusetts, Maryland, Michigan, New Jersey, Nevada, North Carolina and South Carolina, according to the OCC.

Hired by those states to administer the jobless aid, the Charlotte, North Carolina-based bank "failed these prepaid cardholders by denying them access to their mandated unemployment funds," while leaving them without a way to fix the situation, Michael Hsu, acting comptroller of the currency, said in a news release.

"Bank of America automatically and unlawfully froze people's accounts with a faulty fraud-detection program, and then gave them little recourse when there was, in fact, no fraud," the CFPB stated.

Bank of America also distributed jobless benefits on behalf of other states, most of which issued the payments through direct deposit.

Beyond the fines, Bank of America will have to reimburse consumers the money that was withheld from them as well as a "consequential harm" payment, according to CFPB. Roughly 100,000 cardholders were impacted, and the compensation would total "hundreds of millions of dollars," a spokesperson stated in an email.

Bank of America attempted to fulfill its contractual obligations under difficult circumstances, the bank said.

In an emailed statement to CBS MoneyWatch, a Bank of America spokesperson noted that in 2020 and 2021 state systems were overwhelmed with fraudulent claims, as "the pandemic created unprecedented criminal activity where illegal applicants were able to get states to approve tens of billions of dollars in payments."

The bank helped "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," the spokesperson said.

Bank of America has 90 days to submit its plan for reimbursing individuals to the CFPB, after which the bank intends to contact those eligible for the payments, the spokesperson said.