EDD: The Gift (to Fraudsters) That Keeps on Giving

EDD offices have been closed to the public
since the Oxnard shootings in 1993.

Since COVID payments began, losses from Employment Development Department (EDD) fraud range between $20 billion (EDD) to $32.6 billion (analyst estimate). This Chronicle headline seems to name the culprit:

California EDD lets go of Bank of America for unemployment payments, will soon start direct deposits

I am a customer of Bank of America and have no love for it. In fact, I'm seriously considering moving three accounts because of the bank's high fee schedule and minimum-balance requirements.

In this case, however, Bank of America is getting the short end of the public-relations stick. It was caught between the rock of getting payments out quickly and the hard place of screening for fraud. [bold added]

California’s Employment Development Department has selected a new contractor to pay unemployment and other benefits starting Feb. 15. The new vendor, Money Network, replaces Bank of America, which drew criticism during the pandemic for sometimes blocking payments to legitimate recipients...

A class-action lawsuit says BofA left the door open for unemployment benefit accounts to be hijacked by criminals. Then, the lawsuit said, BofA would freeze accounts, leaving victims unable to access past or future benefits, even with a replacement card.

The upshot is that B of A has been trying to get of this contract for years, not that EDD is "letting go" of the bank.

BoA had made it crystal clear that it no longer wished to administer California benefits, but under the terms of its contract with EDD, the state had the “sole option” to renew its contract with EDD for two-year periods, which it chose to do, both in June 2021 and June 2023. “We have advised the state that we would like to exit this business as soon as possible,” BoA said in summer 2021.

The new service provider, Money Network, will, like B of A, put "recipients’ benefits on prepaid debit cards" and "offer direct deposits to laid-off workers’ bank accounts." There's no mention about improved audit controls.

$40 billion in cumulative fraud is within reach, if we haven't gotten there already.

Bank of America: Not Optimal

Asterisks hide passwords from users, too

It's possible to have too much security on an internet bank account.

As many websites do, Bank of America's replaces password characters with asterisks (*) shortly after the characters are typed in. Because passwords now have numbers, special characters, and both lower-case and capital letters, the probability of a mistake has increased as passwords have become lengthier. But one can't see what has been typed.

Unlike all my other financial and shopping accounts, Bank of America does not have a "show" or "eye"(👁) button that allows the user to turn off the asterisks.

After 3 password failures, Bank of America locks the account. And yes, that has happened to me, and I had to call the bank and spend an hour satisfying the person at the other end that I was not a scammer. The bank had me at its mercy, because the fee structure almost forces retail customers to cancel paper statements in favor of electronic access, which makes it impossible to check or reconcile with a locked account.

I've also gotten to the third and final login attempt several times, when my aging arthritic hands shook with trepidation (okay, some poetic license here).

Bank of America does allow FaceID to login on the iPhone, but the user can do it on only one account--I was locked out of one of the other two which required a typed password.

All the above is a protracted preface to a simulation that showed

that five was actually the optimal number—the sweet spot we were hoping to identify. When allowing five attempts, the number of lockouts were minimized, with no adverse effect on security.

Bank of America would make me a happier customer if: 1) the Password field had a "show" option; 2) the account would lock after the fifth attempt, not the third; 3) iPhone FaceID would work on every account, not just one. I would like all of those changes, but I am not expecting any.

Come to think of it, why am I staying with them?

If Something Changes, Be Very Careful.

Technology has given us amazing tools to manage the complexity of modern life. I am speaking, of course, of automatic bill-pay---no more stamps, envelopes, and cramping of a right hand that's no longer accustomed to writing checks, or handwriting anything, for that matter. The downside of technology is that there are new screw-ups to watch for.

I have a simple business which has its own bank account. The business has five automatic transactions per month--one cash receipt and four cash disbursements, all fixed amounts--that produce a surplus of $200. After the surplus is transferred out, the bank account keeps a few hundred dollars. The business was on auto-pilot.

One of the regular payments was for a loan. When Bank of America sold the loan to Nationstar, I changed the information on the bill-pay system. Unfortunately, the Nationstar payment was, I suppose, entered under both "recurring" and "one-time," so a double payment was made, resulting in an overdraft. (I am happy to say that this error never occurred when a payment could only be made by check.)

I voiced a minor complaint to Bank of America, which never responded. Yes, I probably bear some responsibility for not filling out the bill-pay instructions correctly. But it was the sale of their loan that did trigger the error, after all, and they made a tidy sum while inconveniencing me. Oh, well, I'll just keep this incident in mind when I'm looking for a bank to handle my next business opportunity.

But the important lesson is that auto-pilots are great when everything's normal. If something changes, be very careful.

A Record After Sixteen Years

Apple today quietly marked a financial milestone. Shareholders of record will be paid $2.65 per share next Thursday, the first dividend in 16 years. The amount may seem small, but the payout of 0.42% ($2.65 / $630) per quarter is substantially higher than the 0.05% earned on my Bank of America passbook account (B of A would pay 8 cents per quarter on a $630 savings account balance).

An investor in Apple, of course, is also subject to the risk that the stock price would decline, and recovery of a new investment in Apple shares is much less certain than cash from an insured savings account.

On balance, your humble observer thinks that the stock price and dividend payout will continue to grow. But Apple shares already having risen 53% this year, there are no guarantees. That's why the British often refer to stock-market investing as punting. © 2012 Stephen Yuen

Sympathy Dissipated

The banks are again taking their lumps, most recently for the delays in granting relief to borrowers on the brink of foreclosure. In the public mind the banks still haven't received punishment for the past decade's relentless pursuit of "flip" profits on risky financial deals, then leaving taxpayers to hold the bag when the losses proved too much for them to absorb. The payouts of big bonuses to people who caused the mess poured salt in the public's wounds.

In the current environment it's very tough to manage a bank: they have been directed to lessen the risky assets that they are holding and make more loans---contradictory actions that are like stepping on the gas and the brakes at the same time. Nevertheless, their incessant search for fees from everyone, even in areas totally removed from mortgage lending, immediately dissipates any sympathy.

In 2012 I enrolled in a high-deductible health plan and opened a Health Savings Account to pay the HDHP's out-of-pocket expenses. (HSAs have a number of advantages, principally tax-deductible contributions and tax-deferred earnings.) I opened the HSA at the Bank of America and tried to write a $3,000 check from one of my two Bank of America checking accounts to fund the account. I wanted to pay for some prescriptions from the HSA and couldn't imagine that there would be a problem, since we have had loans and accounts with B of A since the 1980's.

The alarm bell should have gone off when the local branch said that they could not handle what appeared to be a simple transfer. A couple of phone calls later, I found that I was able to make the transfer online. The funds were immediately debited from my checking account:

The $3,000 was removed from the account on a Monday

By the third day the funds still had not appeared in the HSA:

As of Wednesday night the $3,000 had not appeared.

The Customer Service person said that the transfer would take five to seven business days because it "had to go through the Federal Reserve". There is no good conclusion that one can reach from this explanation. Either: 1) the Bank had instructed its CSR's to give an explanation that was patently false, or 2) a small $ transfer between accounts in the same bank does have to be handled by the Federal Reserve, which could be one reason why the banking system is messed up. I am inclined towards (1), which means I'll be looking for a new HSA bank next year.

Oh, yes, the $ did appear in day 4, I did refill my prescriptions, and the bank promptly deducted its $4.50 monthly fee last week.