Bank of America froze more than 25,000 Nevada unemployment insurance debit cards from July through February while the state fielded an onslaught of unemployment claims — a move that officials say prevented payouts on fraudulent claims but also frustrated many legitimate claimants who were cut off from crucial payments for months at a time.

One of those was Las Vegas resident Scott Kornfield, who had his unemployment debit card account frozen in December after Bank of America detected a fraudulent $1,000 charge to his card in the previous month. Despite numerous calls to the Department of Employment, Training and Rehabilitation (DETR) and Bank of America, he said neither the department nor the bank would unfreeze his account even after verifying his identity with DETR.

“I have all the documents that says I am this human, and it's extremely frustrating and exhausting,” said Kornfield, who lost his job in the early days of the pandemic. “The money they have guaranteed isn't getting delivered because there's a dispute between whose responsibility it is to verify the identification of people, whether it's the bank or the state.”

Nevada is one of only two states that does not allow claimants in the regular unemployment insurance program to receive benefits through direct deposit, instead only permitting disbursements through prepaid debit cards or paper checks. The lack of a direct deposit option is a practice criticized by national consumer advocates, as it can create problems for claimants trying to access benefits.

Bank of America even raised concerns about the state’s limited disbursement options during contract negotiations in 2015 between the bank and the state for the distribution of unemployment benefits.

“If you confirm that this is the current situation in Nevada and the State is not involved in the direct deposit program, there is high concern that this process may be in violation of Federal Regulations that require States to provide initial funding options to citizens beyond Card,” the bank wrote. “We just want to proactively make Nevada aware of this potential concern.”

The state wrote back that it was aware of the issue but was told that it was in compliance with federal regulations. The Nevada unemployment benefits program still is in compliance with Consumer Financial Protection Bureau regulations because DETR offers the option for claimants to receive benefits through paper checks.

DETR declined requests for interviews related to the department’s relationship with Bank of America, as well as the department’s handling of fraudulent claims. The department additionally declined to provide details about the reports that show more than 45,000 Nevada unemployment accounts have been closed by Bank of America since July, with more than 25,000 of those related to fraud.

Those thousands of fraud holds issued by Bank of America typically came as a result of three different scenarios, according to bank spokesman Bill Halldin: when a state employment agency requests a freeze on the card; when Bank of America detects evidence of fraud on the account; or when law enforcement or another government agency raises suspicion of fraud on the account.

Kornfield said a DETR investigator told him the department was still disbursing his benefits to Bank of America because the state had not detected fraud on his account, while Bank of America representatives told him that he needed to contact DETR in order to solve the issue with his frozen account.

A lack of clear answers left Kornfield uncertain about his future.

“I shouldn't have to destroy my credit or pray to God that I don't get injured or get sick during a pandemic,” he said. “That stress, that burden, that … things are okay today, three weeks from now, I don't know what that looks like. I can't even imagine. I can't even begin to plan for it.”

Kornfield’s situation was resolved by DETR in late March, nearly 100 days after his Bank of America unemployment benefits account was frozen. The bank reactivated his debit card, and he was told by the department that he would be receiving a paper check with the back pay of his benefits. Kornfield was not told, however, how long it would take before he would receive his benefits through the paper check. As of publication, he still has not received the money.

The unemployment debit card system

DETR officials have said the agency is working to allocate more resources to handling situations like Kornfield’s and the widespread fraud the unemployment program is facing. In a March 23 budget hearing, DETR Administrator Elisa Cafferata said that the department is allocating 36 intermittent positions for fraud support staff who will work to unfreeze benefit debit cards and review cases of questionable identity.

The department’s new effort to resolve debit card freezes comes as unemployment claimants in Nevada choose their method of receiving benefits from a smaller set of options than the vast majority of other Americans.

Instead of offering direct deposit, Nevada, alongside California, disburses benefits through a prepaid Bank of America debit card, with the option for regular unemployment claimants to receive benefits through paper checks. Most other states offer the options of direct deposit or a prepaid debit card, and Maryland will begin disbursement through direct deposit in April.

Lauren Saunders, associate director of the National Consumer Law Center and the center’s expert on government prepaid cards, said the lack of a direct deposit system can pose problems for consumers.

“The ATMs may not be convenient, they may have a delay in transferring money from the card to the bank account, it’s cumbersome to manage two accounts,” Saunders said. “And there's really no reason to have a prepaid card if you have a bank account and you can get direct deposit there.”

In early January, DETR announced on Twitter that it was working toward making direct deposit available to regular unemployment claimants — the option is currently available for claimants through the fully federally funded Pandemic Unemployment Assistance (PUA) claimants for gig workers and for the self-employed. But the department has yet to announce a timeline for introducing a direct deposit system.

The unemployment systems in both Nevada and California allow claimants to have benefits automatically sent to their personal bank accounts through a direct deposit system, but that transaction can only occur after benefits are first routed through Bank of America. That means a freeze on someone’s unemployment debit card would leave them unable to transfer the funds to a personal account.

DETR acknowledged the frustration that claimants were experiencing with their prepaid debit cards in another January announcement on Twitter and noted that a limited number of claimants may have had their account “erroneously frozen or blocked” by Bank of America.

As thousands of Nevadans experience issues with the prepaid debit cards, data shows that few claimants in the state elect to receive their benefits through paper checks. 

A 2013 report from the National Consumer Law Center authored by Saunders found that Nevada distributes 4 percent of unemployment insurance benefits through paper checks, compared to 96 percent through prepaid cards. A DETR representative wrote in an email that the department now sends out about 175 paper checks per week to claimants who do not receive their benefits through a debit card — that number does not include paper checks provided to claimants who have had their card frozen.

Sen. Keith Pickard (R-Henderson) wants to ramp up the number of paper checks being sent out by the department.

“There are some real problems, systemic problems with using the debit cards,” Pickard said in an interview with The Nevada Independent. “Until we can get into a system that is modern and has some checks and balances built into it… for now, paper checks.”

The paper checks option is not a simple one for claimants to use, though. Information about the paper checks option is listed in an online DETR document called “Frequently Asked Questions about the Unemployment MasterCard,” which also includes myriad other information about the state’s disbursement of unemployment benefits.

Saunders called it a “legally questionable” practice to not offer other options beyond the prepaid card up front.

“It certainly violates the spirit of the law,” she said. “The spirit of the law is you shouldn't be forced to use an account, including a prepaid card, that you don't want.”

Kornfield wrote in an email that when he originally tried to call the DETR phone number for switching to paper checks, he only received a prerecorded message that indicated he would need to go through the identity verification process in order to switch — the same process he was going through to unfreeze his unemployment debit card account.

The same slow process that Kornfield has experienced in verifying his identity and resolving his fraud issues with DETR is reflective of the extreme backlog that the department has faced over the past year as it has been inundated with about 2 million regular unemployment and PUA claims.

The agency is investing millions of dollars into handling the tens of thousands of claims it considers fraudulent. A new federal bill requires ID verification of PUA claimants for their initial claims and weekly filings, and the agency has sunk $1.5 million into a contract with platform ID.me to perform the verifications. To specifically combat fraud, DETR entered into a contract with Ponderosa Solutions for nearly $800,000 to help detect and investigate fraud within the state’s unemployment program.

All of that investment is going towards aiding an unemployment system that is decades old and in need of modernization. An independent analysis concluded the state needs to overhaul the system in an upgrade that could take several years and up to $50 million to complete. 

Saunders said the outdated system could be an underlying reason the state has not yet implemented direct deposit.

“I have heard that California has a rather archaic computer system, and that may have something to do with why they didn't go direct deposit,” she said. “I don't know if it’s just inertia. But certainly direct deposit is, for the most part, very simple and easy, and millions of government agencies and companies do it all the time.”

As the department navigates upgrades to its system, Bank of America is taking some steps to ease the impact of fraud on unemployment claimants. Alongside his account reactivation, Kornfield received a letter from the bank that stated the company would now be working with claimants to try to release account freezes. 

But that, too, might not be enough for a fix. The letter itself notes that “there may be circumstances where your call will not result in the removal of the account hold.”