OCC Directs Wachovia to Make Restitution to Consumers Harmed by the Bank's Relationships with Telemarketers and Payment Processors

WASHINGTON — The Office of the Comptroller of the Currency (OCC) has entered into a settlement agreement with Wachovia Bank, National Association that directs the bank to make restitution to consumers harmed by its relationships with several telemarketers and third party payment processors.

The bank has agreed to make restitution to all consumers harmed who have not been previously reimbursed and who file claims under the processes set out in the settlement. The estimated maximum amount of potential claims is $125 million; actual claims may result in restitution in a lesser amount. In addition to the restitution payments, the bank will also be required to contribute approximately $8.9 million to consumer education programs directed at the elderly, and to pay a $10 million civil money penalty to the U.S. Treasury.

Many of the consumers harmed by the third party telemarketers and payment processors have already received reimbursement from the payment processors and telemarketers. The settlement is intended to cover those who have not already received restitution. The payment processors and telemarketers involved were Payment Processing Center, LLC, FTN Promotions, Inc. dba Suntasia, Inc., Netchex Corp., and Your Money Access LLC, and related companies.

In reaching the settlement, which culminates 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 within the meaning of the Federal Trade Commission Act. The OCC believes that thousands of consumers, many of whom were elderly, were harmed in connection with the payment processors' and telemarketers' activities at the bank, and that the bank profited from these activities 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.

The practices cited by the OCC 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 accountholder and does not bear the accountholder's signature. Instead, the signature block of the check includes text such as "authorized by your depositor, no signature required."

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or payment processor would create an RCC and deposit the instrument into an account at Wachovia, causing funds to be withdrawn from consumers' accounts.

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. Although employees in Wachovia's risk management and loss management departments became aware of these relationships and the high return rates, the bank failed to take quick action to terminate these account relationships or otherwise correct the problem.

In resolving the matter with the OCC, the bank did not admit or deny wrongdoing. However, the settlement addresses practices that the OCC found objectionable.

Under the agreement with the OCC, Wachovia will now 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.

In addition to the monetary components of the settlement, Wachovia is required to develop new policies and procedures with respect to RCCs, payment processors for telemarketers and telemarketers. These policies are to include requirements for enhanced due diligence and underwriting on these higher risk customers, regular monitoring of return rates, better coordination of risk management efforts, and targeted consumer protection policies.

In addition to the action described above, the OCC also has issued updated 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. The guidance notes that when a processor is interposed between the bank and the merchant, risks are heightened and appropriate controls must be implemented. For further details, see OCC Bulletin 2008-12.

Related Links

• Consent Order for a Civil Money Penalty
• Formal Agreement