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California will tighten the security of debit cards it uses to issue unemployment insurance and other benefits following a wave of fraud, according to an announcement from the state’s Department of Employment Development.
The state agency plans to work with Bank of America to begin rolling out chip-based debit cards for new applicants, as well as those who need to be replaced, starting July 25, the department said. in its announcement Thursday.
The news comes about a week after a CNBC investigation highlighted the lack of chips in many government cards, which contributed to unemployment insurance theft for more than 100,000 beneficiaries during the pandemic.
“Smart cards can help protect in-person point-of-sale transactions when the card is used at a terminal,” the state’s employment development department said in the statement.
The new smart cards will also be used for disability insurance benefits and paid family leave starting July 25, the department said.
Bank of America was hired by the state years ago to help distribute the benefits, almost entirely through debit cards. A California class action lawsuit accuses Bank of America of failing to “take reasonable steps to protect benefits from fraud.” The complaint said the lack of “anti-fraud” chip technology in the plaintiffs’ cards made them “easily susceptible to cloning.”
Fraudsters can use duplicate cards to steal money from people receiving unemployment benefits, CNBC’s investigation revealed.
The bank told CNBC that its “# 1 goal has always been to ensure that legitimate recipients can access their services.”
“At the request of the state, we are working on adding chips to the new cards,” said Bill Halldin, spokesperson for Bank of America.
California recently extended its contract with Bank of America; however, the company said it “would like to withdraw from this business as soon as possible.”
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