Wachovia to Pay $125 Million in Phone Fraud Case

The Office of the Comptroller of the Currency has reached a settlement with Wachovia Bank, N.A. directing the bank to pay about $125 million in restitution to consumers harmed by its relationships with several telemarketers and third-party payment processors.

In addition, the bank will contribute approximately $8.9 million to consumer education programs directed at the elderly and to pay a $10 million fine to the U.S. Treasury.

Many victims have already received reimbursement from the payment processors and telemarketers. The settlement is intended to cover those who have not already received restitution, according to the OCC.

The payment processors and telemarketers involved were: Payment Processing Center LLC; FTN Promotions Inc. doing business as Suntasia Inc.; Netchex Corp. and Your Money Access LLC and related companies, according to the OCC.

In reaching the settlement, after an 18-month investigation, the OCC concluded that the bank engaged in unsafe or unsound practices during the course of its relationships with the payment processors and telemarketers and unfair practices as defined by the Federal Trade Commission Act.

According to the OCC, thousands of consumers, many of whom were elderly, were harmed, and that the bank profited in the form of fees collected from and balances maintained at the bank by the payment processors and telemarketers.

Under the agreement, the bank will forfeit an amount equal to the fees it earned and donate the funds, plus an additional $5 million, to consumer education programs directed at the elderly, according to the OCC..

The practices cited in the settlement involved the use of remotely created checks, or RCCs, by telemarketers and payment processors that maintained account relationships with the bank. An RCC is a check that is not created by the account holder and does not bear the person’s signature. Instead, the signature block of the check includes text such as "authorized by your depositor, no signature required," according to the OCC.

The telemarketers obtained bank account information over the phone by offering consumers a range of questionable products and services such as grant writing kits, identity theft certificates, medical discount plans and vouchers for discount travel and groceries, the OCC continued.

With the account information obtained during the call, the telemarketer or payment processor would allegedly create an RCC and deposit the instrument into an account at Wachovia, causing funds to be withdrawn from consumers’ accounts, according to the OCC.

A large percentage of these RCCs were returned to Wachovia by individuals, or their financial institutions, who said the checks were never authorized or that they had never received the products or services offered by the telemarketers. In some cases, RCCs returned to the bank exceeded 50% of the total deposited, the OCC stated.

In addition, the bank failed to take quick action to terminate these account relationships or otherwise correct the problem, the OCC alleged.

Wachovia neither admitted nor denied any wrongdoing.

Under the agreement, Wachovia will make restitution to consumers who file claims certifying that funds were withdrawn from their accounts without their authorization or that they never received the products and services allegedly sold to them by the telemarketers, according to the OCC.

In addition, Wachovia must develop new policies and procedures with respect to RCCs, payment processors for telemarketers and telemarketers.

These include enhanced due diligence and underwriting on higher- risk customers, regular monitoring of return rates, better coordination of risk management efforts, and targeted consumer protection policies, according to the OCC.

The OCC has also updated its guidance to national banks regarding the need for effective due diligence, underwriting, and monitoring of entities that process payments for telemarketers and other merchants.

Certain merchants, such as telemarketers, pose a higher risk than other merchants and require additional due diligence and close monitoring by national banks, according to the OCC.

This guidance notes that when a processor is interposed between the bank and the merchant, risks are heightened and appropriate controls must be implemented.