California will strengthen the security of the debit cards it uses to issue unemployment insurance and other benefits after a wave of fraud, according to an announcement by the state Employment Development Department.
The state agency plans to work with Bank of America to roll out chip-enabled debit cards for new applicants as well as those in need of replacements starting July 25, the department said in its announcement on Thursday.
"Currently, the smart cards are only intended for new applicants and those who contact the bank for replacements for lost, stolen, damaged and expired cards," a department spokesman told CNBC.
The news comes about a week after a CNBC investigation highlighted the lack of chips in many government cards, which helped more than 100,000 recipients steal unemployment insurance during the pandemic.
"Smart cards can help protect personal point-of-sale transactions when the card is used in a terminal," the state's Department of Employment Development said in the statement.
The ministry announced that the new chip cards will also be used for benefits from occupational disability and family vacation insurance from July 25th.
Bank of America was hired by the state years ago to help distribute benefits, almost entirely through debit cards. A class action lawsuit in California accuses Bank of America of "taking sensible steps to protect benefits from fraud". The complaint stated that the plaintiffs' cards were "easily prone to cloning" due to the lack of chip technology to "prevent fraud".
Fraudsters can use duplicate cards to steal cash from people receiving unemployment benefits, the CNBC research found.
The bank told CNBC that its "# 1 goal has always been to ensure that legitimate recipients can access its benefits".
"At the request of the state, we are working on adding chips to new cards," said Bill Halldin, a spokesman for Bank of America.
California recently renewed its contract with Bank of America; However, the company said it "wants to get out of this business as soon as possible".
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