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Apr-26-2008Big Fine Set for Wachovia to End Case(topic overview)
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Wachovia Bank has agreed to pay $144 million in a settlement with the Office of the Comptroller of the Currency (OCC), which required the bank to make restitution to consumers harmed by its relationships with several telemarketers and third-party payment processors who obtained customers' bank account information while selling vouchers for discount travel and other products. [1] NEW YORK (Thomson Financial) - The Office of the Comptroller of the Currency (OCC) Friday said it reached a settlement with Wachovia Bank in which Wachovia will pay an estimated $125 million in restitution to all consumers harmed by the bank's relationship with telemarketers and third-party payment processors.[2] BOSTON (Thomson Financial) - The Office of the Comptroller of the Currency (OCC) Friday issued new guidance for U.S. banks regarding relationships with third-party payment processors. The bulletin follows the OCC's directive to Wachovia (nyse: WB - news - people ) Bank to pay consumers $125 million in restitution for its role in abuses by telemarketers and the processors.[3]
April 25 (Bloomberg) -- Wachovia Corp. will pay as much as $144 million to settle a U.S. regulator's claims that the bank's poor oversight allowed telemarketers and payment processors to withdraw millions of dollars from customers' accounts. Wachovia, the fourth-largest U.S. bank, will pay as much as $125 million in restitution to customers, a $10 million civil penalty and $8.9 million for consumer-education programs, the U.S. Office of the Comptroller of the Currency said today in a statement on its Web site.[4] The bank has not admitted any wrongdoing, but will pay up to $125 million in claims, $8.9 million toward consumer education programs and a $10 million fine. Many of the consumers hurt by third-party telemarketers and payment processors have already been reimbursed by those companies, the bank regulator said. The settlement caps an 18-month investigation of unsafe or unsound practices in Wachovia Corp's bank during the course of its relationships with the payment processors and telemarketers, the comptroller said.[5] Potential claims by thousands of consumers, including many elderly, could be as much as $125 million, the OCC said in a statement, but the actual claims could fall short of that amount. Many of the consumers hurt by third-party telemarketers and payment processors have already been reimbursed by those companies, the bank regulator said. Wachovia Corp's (WB.N: Quote, Profile, Research ) bank was under investigation by bank regulators for 18 months over its relationships with payment processors and telemarketers that obtained bank information from consumers who were offered questionable products and services, including medical discount plans and travel vouchers.[6] The Wachovia case, the subject of an 18-month investigation by bank regulators, involved the use of "remotely created checks," which do not require a customers signature. Regulators said Wachovia had relationships with several telemarketers and payment processors that allowed them to obtain customers bank account information over the phone. Marketers would call Wachovia customers, offer them medical discount plans or other services, create a check and withdraw cash from customers accounts. The government said a "large percentage" of customers complained, saying they never authorized the payments, or didnt receive the products or services offered. Though the bank became aware of the problem, it "failed to take quick action to terminate these account relationships or otherwise correct the problem," the OCC said in a statement. AP Business Writer Ieva M. Augstums in Charlotte contributed to this report.[7] The Charlotte, North Carolina-based bank agreed to the settlement without admitting or denying wrongdoing, the Washington-based OCC said. The settlement stems from an 18-month investigation that determined Wachovia profited from fees and other charges on accounts maintained by payment processors and telemarketers who took advantage of thousands of consumers, most of them elderly, from June 2003 through December 2006. "The OCC concluded that the bank engaged in unsafe or unsound practices during the course of its relationships with the payment processors and telemarketers,'' the agency said today in its news release. Telemarketers got account information over the phone by selling consumers "questionable'' products such as identity- theft certificates, according to the statement.[4] The bank also pointed out that it was not directly involved in the telemarketing activity or soliciting of account information from consumers. At the time of this incident, it provided banking services to some telemarketing companies and companies that processed payments for the telemarketers. The settlement culminates an 18-month OCC investigation which concluded that Wachovia "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 through fees collected from and balances maintained at the bank by the payment processors and telemarketers.[1]
The decision follows an 18-month investigation in which the OCC concluded that the Wachovia Corp. bank had improper relationships with payment processors and telemarketers, who used bank account information to sell vouchers for discount travel and groceries, and other products.[2] The federal Office of the Comptroller of the Currency says Wachovia, based in Charlottle, N.C., had improper relationships with telemarketers, who used bank account information to sell vouchers for discount travel and groceries, and other products.[5] The federal Office of the Comptroller of the Currency said Friday that Charlotte, North Carolina-based Wachovia, the fourth-largest U.S. bank, had improper relationships with telemarketers, who obtained customers bank account information while selling sell vouchers for discount travel and groceries and other products.[7]
According to the Office of the Comptroller of the Currency, the case involved the use of "remotely created checks," which do not require a customer's signature. The signature block of the check included text such as "authorized by your depositor, no signature required." According to regulators, telemarketers with accounts at Wachovia called the bank's customers and offered them items such as medical-discount plans or vouchers for discount travel and groceries. They then used a remotely created check to withdraw funds from customers' accounts. The Office of the Comptroller said a large percentage of customers said the checks were never authorized or that they never received the products or services offered by the telemarketers.[8]
Regulators said telemarketers would make sales calls, obtain customers' bank account information, create a check and withdraw cash from customers' accounts. The government said a "large percentage" of the consumers complained, saying they never authorized the payments, or didn't receive the products or services offered. Those affected included customers with accounts at numerous banks, including Wachovia. Though the bank became aware of the situation, it "failed to take quick action to terminate these account relationships or otherwise correct the problem," the OCC said in a statement.[9] The information was then used to transfer funds from customers' accounts to Wachovia accounts held by the companies without authorization or without providing products, the regulator said. Wachovia's risk-management and loss-management employees "failed to take quick action to terminate these account relationships or otherwise correct the problem,'' the OCC said. "This situation was unacceptable and we regret it happened,'' Wachovia spokeswoman Christy Phillips Brown said in a telephone interview.[4]
Four telemarketers or payment processors -- Payment Processing Center, FTN Promotions (formerly known as Suntasia), Netchex and Your Money Access -- and related companies, would obtain account information over the phone and have money directly withdrawn from victims' accounts, the agency said. Wachovia did not admit or deny any wrongdoing, but OCC said bank officials became aware of the telemarketers actions and "failed to take quick action to terminate these account relationships or otherwise correct the problem."[10] Wachovia earned $1.58 million in revenue from the PPC account from March 2005 through January 2006, according to court documents. That month, David T. Mowrey, senior vice president and director of legal services at Citizens Bank of Pennsylvania in Philadelphia, wrote to Wachovia complaining about a flood of unauthorized drafts on Citizens accounts. "The purpose of this message is to put your bank on notice of this situation and to ask for your assistance in trying to shut down this scam," Mowrey wrote in an e-mail to Elisa Barbis in Wachovia's legal department in Philadelphia. He remains at Citizens in that capacity, but a spokeswoman for Citizens said he would not comment. After PPC was shut down on Feb. 17, 2006, Wachovia noticed an increase in returned checks at other payment processors, indicating that telemarketers quickly moved their business. Among them was Guardian Marketing, another company named today by the OCC. "Although we appear to generate significant revenue from Guardian due primarily to the large number of returns, this is not the type of customer we want at Wachovia," Dan Amesbury of Wachovia's treasury services risk management in Charlotte wrote in September 2006.[11] Wachovia Corp. has agreed to pay an estimated $144 million to settle federal allegations that it failed to stop telemarketers charged with taking advantage of thousands of elderly consumers. The federal Office of the Comptroller of the Currency said Friday that Charlotte, N.C. -based Wachovia (nyse: WB - news - people ) didn't act quickly enough to block telemarketers and payment processors who maintained their accounts at the bank.[12] Under the agreement, Wachovia also has to pay a $10 million fine and donate $8.9 million for consumer-education programs aimed at the elderly, who were the typical victims of the telemarketing schemes. The Office of the Comptroller of the Currency said an 18-month investigation showed that Wachovia, which is the biggest bank in the Philadelphia region, "engaged in unsafe or unsound practices" in its relationships with companies that process payments for telemarketers. One of the Wachovia customers cited by the OCC was based in Bucks County and was shuttered by the U.S. Attorney in Philadelphia for its role in helping telemarketers steal $60 million in 11 months from 350,000 victims.[11] In addition to the $125 million, the Wachovia Corp. bank has also to pay $10 million civil money penalty to the U.S. Treasury and $8.9 million to consumer education programs directed at the elderly. In the bulletin, the OCC said certain merchants, such as telemarketers, pose a higher risk than other merchants and require additional due diligence and close monitoring.[3] The bank must pay a $10 million civil penalty and $8.9 million to fund consumer education programs directed at the elderly. According to the OCC, the telemarketers obtained bank account information over the phone by offering products and services such as grant writing kits, identity theft certificates, medical discount plans and vouchers for discount travel and groceries.[10] An RCC is a check that is not created by the account holder and does not bear the account holder's signature. 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.[1]
The settlement ends an 18-month federal investigation of the Charlotte bank, which has been accused of turning a blind eye when third-party telemarketers used the bank's accounts to steal from customers. According to investigators, third-party telemarketers would obtain bank account information from customers by offering them products such as grant writing kits and medical discount plans. The telemarketers would use that information to create checks purportedly authorized by those customers and deposit those checks into Wachovia accounts.[13] While the bank has not admitted any wrongdoing, federal banking officials claim Wachovia had improper relationships with third-party telemarketers who used bank account information to sell vouchers for discount travel, groceries and other products.[14]
The OCC said the payment firms and telemarketers would obtain sensitive bank account information over the phone by selling consumers "a range of questionable products and services." That information would be used to create a "remotely controlled check" that would be deposited by the firms and result in funds being withdrawn from consumers' accounts.[15] 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.[1] The consumer received a guidebook on how to apply for grants. Such telemarketers, which usually operate in Canada, India or the West Indies, rely on so-called remote-created checks because anti-fraud rules lock them out of normal payment channels. The telemarketers send the account information to a third-party processor, which creates the check and deposits the check in its own account. After the check clears, the payment processor deducts its fee and remits the remainder to the telemarketer.[11]
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.[1] Wachovia Corp. will pay up to $125 million to customers harmed by the bank's relationship with some telemarketers and payment processors, according to a settlement announced today.[13] The settlement also calls for the bank to pay a $10 million civil money penalty to the U.S. Treasury. Many of the consumers hurt by third-party telemarketers and payment processors have already been reimbursed by those companies.[14]
The bank has not admitted any wrongdoing but will pay up to $125 million in claims, $8.9 million toward consumer education programs and a $10 million fine to the U.S. Treasury. "This situation was unacceptable and we regret it happened," Wachovia said in a statement.[1] The $125 million is the estimated maximum amount of the potential claims, but Wachovia (nyse: WB - news - people ) will also have to pay a $10 million civil money penalty to the U.S. Treasury and give $8.9 million to consumer education programs directed at the elderly.[2]
Wachovia did not admit any wrongdoing, but will pay up to $125 million in claims, $8.9 million toward consumer education programs and a $10 million fine. "This situation was unacceptable and we regret it happened," said Wachovia spokeswoman Christy Phillips-Brown.[9] Wachovia will have to pay an estimated $125 million in claims and give another $8.9 million toward consumer education programs directed at the elderly.[14]
The Charlotte, N.C. -based bank (NYSE: WB) -- the fourth-largest in Greater Baltimore when ranked by deposits -- will pay up to $125 million in claims, $8.9 million toward consumer-education programs for the elderly and a $10 million fine.[8] The bank must also pay $8.9 million to consumer education programs for the elderly, and a $10 million civil penalty.[15] The bank, the country's fourth largest, agreed to pay $18.9 million as part of a consent order, including a $10 million civil penalty and $8.9 million for consumer education programs, according to the Office of the Comptroller of the Currency.[6]
The nation's fourth-largest bank agreed to make up to $125 million in restitution payments to consumers, mostly elderly ones, harmed by telemarketers engaged in practices deemed "questionable" by the Office of the Comptroller of the Currency.[10]
After an 18-month federal investigation, Wachovia Bank WB on Friday agreed to pay as much as $143.9 million in restitution and penalties to the federal government and customers harmed by the bank's relationship to telemarketers.[10] WASHINGTON -- Wachovia Corp. agreed Friday to pay as much as $144 million to settle an 18-month government investigation into its relationship with telemarketers that allegedly harmed between 350,000 and 500,000 consumers, many of them elderly.[16] WASHINGTON (Reuters) - Wachovia Bank agreed to pay as much as $144 million to settle allegations it failed to help consumers who fell prey to schemes operated by telemarketers that maintained accounts at the bank, regulators said on Friday.[6]
WASHINGTON (AP) - Wachovia (WB) has agreed to pay an estimated $144 million to settle charges that it took advantage of elderly customers through questionable relationships with telemarketers.[5] Charlotte, N.C. -based banking giant Wachovia has agreed to an estimated $144 million settlement after facing charges that it took advantage of elderly customers through questionable relationships with telemarketers.[14]
The settlement ends an 18-month investigation by the Office of the Comptroller of the Currency into allegations of unsafe or unsound practices during the course of Wachovia'''s relationships with payment processors and telemarketers. [14] Remotely created checks do not require the accountholder's signature. A large percentage of these checks were returned to Wachovia by individuals or their banks, who said they had never authorized the checks or received the products sold by the telemarketers. The Office of the Comptroller of the Currency says that Wachovia was aware of these high return rates, but "failed to take quick action to terminate these account relationships or otherwise correct the problem."[13] In some cases, RCCs returned to the bank exceeded 50 percent of the total on deposit by an account holder. "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," the OCC said in a statement.[1] Wachovia spokeswoman Christy Phillips-Brown said the bank will no longer have account relationships with telemarketers. She added that there were a small number of employees involved in these activities.[1]
Bank spokeswoman Christy Phillips-Brown emphasized today that Wachovia was not directly involved in the telemarketing activity, and that it no longer keeps accounts for companies that are strictly telemarketers or payment processors for telemarketers. "We took this issue very seriously, and senior management was actively involved in directing aggressive steps to correct the processes related to the situation," Phillips-Brown said.[13] The telemarketers and payment processors used remote checks, which aren't created by accountholders and don't carry signatures, to transfer customers' funds into Wachovia accounts.[4] The regulatory settlement requires Wachovia to develop new policies for payment processors, telemarketers and so-called remotely created checks used for telephone and online transactions.[4] In addition to the fines, the OCC requires Wachovia to develop new policies and procedures related to remotely created checks, payment processors for telemarketers and telemarketers.[2]
The deal followed an investigation into the bank's business relationship with telemarketers and payment processors who took advantage of customers, many of whom were elderly.[15] Unauthorized payments: The Wachovia case, the subject of an 18-month investigation by bank regulators, involved the telemarketers' use of "remotely created checks," which do not require a customer's signature.[9] Federal banking regulators today ordered Wachovia Bank to make restitution up to an estimated $125 million for its dealings with companies - including one in Bucks County - linked to fraudulent telemarketers.[11] Federal regulators accuse the Charlotte, N.C. -based bank of not acting quickly enough to protect customers from telemarketers.[9] In a letter to Comptroller John Dugan, Markey noted that other settlements involving the OCC and other federal regulators were structured so that customers were proactively identified and mailed checks. "Mailing checks directly to victims, rather than requiring victims to file claims, would clearly result in a significantly higher rate of recovery for consumers, one of the ostensible goals of this settlement," Markey said in the letter.[15]
Civil charges: In 2006, federal prosecutors filed a civil case against Pennsylvania-based Payment Processing Center LLC. A federal judge in February 2007 appointed a receiver to return customers' money. That receiver, Wayne Geisser, said Friday that 345,000 consumers were affected. The Federal Trade Commission in summer 2007 froze the assets of Largo, Fla. -based FTN Promotions, also known as Suntasia Inc. or Strategia Marketing LLC, after more than 5,000 people complained to authorities that the telemarketing firm used deceptive sales tactics to get consumers to reveal their bank account information.[9] The telemarketers obtained bank account information over the phone by offering consumers, for example, a $5,000 grant for a $298 fee.[11] Phillips-Brown said the bank was not directly involved in the telemarketing activity or soliciting of account information from consumers, and said the settlement is not expected to impact the company's financial condition.[9]
The telemarketers, which maintained accounts at Wachovia, used information obtained from the consumers to create checks that were deposited without the approval of the individuals.[6] Many of the payment firms and telemarketers in question deposited the fraudulent checks in Wachovia accounts, for which the bank received various fees.[15] Lawyers at the firm filed documents with the court showing that Wachovia officials here and in the bank's Charlotte, N.C., headquarters raised red flags about the accounts maintained for Payment Processing Center LLC in Newtown, but kept the lucrative business. When a PPC official wanted Philadelphia Eagles tickets, Linda Pera, the local Wachovia account manager, wrote in an e-mail, "They deserve them with all we make from them."[11] Wachovia's parent, Wachovia Corp. (NYSE:WB) of Charlotte, N.C., is the largest bank in the Philadelphia region by deposits.[1]
Wachovia shares rose $1.43, or 5.2 percent, to close at $28.81 Friday. AP Business Writer Ieva M. Augstums in Charlotte, N.C. contributed to this report.[12]
The deal requires Wachovia to reimburse customers who may have been harmed by the practices and who file a claim, a payment the OCC estimates could reach $125 million.[15] Wachovia has agreed to pay $144M to settle federal allergations that it did not protect customers from telemarketers.[9] "The behavior of Wachovia was extraordinarily shameful,'' said Langer, a partner at Langer Grogan & Diver. "It wasn't just the money that the telemarketers took, but also that Wachovia charged its own customers hundreds of thousands of dollars in overdraft fees.'' It was the second-biggest settlement demanded by the OCC, agency spokesman Robert Garsson said.[4]
Under the terms of the settlement, approved Thursday, Wachovia is required to return payments to consumers who have claims against Your Money Access.[9] Despite the settlement of the federal investigation, a Center City law firm is seeking class-action certification for a lawsuit alleging that Wachovia was complicit in numerous telemarketing fraud schemes by providing indispensable access to the banking system.[11]
The largest was a $300 million agreement with Providian National Bank in 2000 for unfair and deceptive business practices involving credit card rates and fees. "This is a historic settlement,'' said Carl Tobias, a professor at the University of Richmond School of Law in Virginia.[4] The record was set in 2000, when Providian National Bank had to pay at least $300 million to customers over allegedly deceptive marketing practices.[16]
The marketers obtained customers' bank account numbers while selling products including vouchers for discount travel and groceries and medical discount plans. [9]
The OCC, the U.S. Treasury Department unit that regulates national banks, issued guidelines yesterday calling for better underwriting and monitoring of companies processing payments for telemarketers and other merchants.[4] 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.[10]
The publishing system is part of OCC's modernization effort to move to a real-time infrastructure that is predictable, flexible and driven by service-level agreements. OCC, which regulates and supervises national banks, will transform its information technology infrastructure during the next three or four years to adapt to rapidly changing business needs from manual processes and stand-alone dated applications to a more automated environment, according to Bajinder Paul, OCC's chief information officer. OCC must be able to respond quickly to events just as financial institutions do, he said at an April 10 industry event sponsored by the Industry Advisory Council. Bank examiners are in a pilot project for a Web-based application for portfolio and project management OCC will deploy by the end of September to help the examiners with scheduling and resource planning, he said. Later this year, OCC will roll out a platform for collaboration among regional teams called SharePoint, which is now being tested.[17] The systems integration combines document management and Web content management, a company spokesman said April 21. The system will provide data to OCC's bank examiners in a more timely, accessible and searchable format, whether they are working online or offline, the company said. It also increases the integration of bank information into the examination toolset.[17]
The OCC settlement will not materially affect the bank, Phillips-Brown said.[13] The settlement is the second-biggest secured by the Office of the Comptroller of the Currency, a division of the Treasury Department that regulates national banks.[16] The Office of the Comptroller of the Currency in the Treasury Department has awarded Aquilent a contract valued at $5.3 million over two years to develop and support the agency's Web and Electronic Publishing System.[17]
Two class-action lawsuits filed on behalf of former Wachovia customers seek total damages of more than $500 million, said Howard Langer, the Philadelphia attorney representing the customers. [4] Wachovia stock rose 3.3% to $28.28 in recent trading Friday. It and other bank stocks like Citigroup C, JPMorgan Chase JPM, Bank of America BAC and Washington Mutual WM were rising on news that government-sponsored mortgage giant Fannie Mae FNM was buying more mortgages in March.[10] Wachovia shares rose $1.43, or 5.2 percent, to $28.81 at 4:15 p.m. in New York Stock Exchange composite trading.[4]
Wachovia said it has since stopped accepting business from companies who are strictly telemarketers or from companies that process payments for telemarketers. "This situation was unacceptable and we regret it happened," said Wachovia spokeswoman Christy Phillips-Brown. [11] "We will work diligently to provide restitution to consumers affected by the situation and to educate consumers. Wachovia is pleased to have resolved this matter with the OCC."[1] "We will work diligently to provide restitution to consumers affected by the situation and to educate consumers." She said the settlement is not expected to impact the companys financial condition.[7]
The FTC said the company -- operating under at least 15 different company names, would call consumers, offer trial memberships to travel clubs or discount programs and make it difficult to cancel.[9] Last December the FTC and officials in seven states filed similar civil charges against Florida-based Your Money Access LLC, which used several business names Netchex Corp., Universal Payment Solutions, Check Recovery Systems, Nterglobal Payment Solutions Subscription Services, Ltd. and YMA Company, LLC.[9]
SOURCES
1. Wachovia settles with OCC for $144M - Philadelphia Business Journal:
2. Wachovia to pay up to $144 million to settle telemarketing probe - Forbes.com
3. OCC issues guidance to U.S. banks for monitoring third-party payment processors - Forbes.com
4. Bloomberg.com: Worldwide
5. Wachovia will pay up to $144M to settle marketing case - USATODAY.com
6. Wachovia to pay up to $144 mln to settle probe | Reuters
7. Wachovia to pay up to $144M to settle marketing allegations - International Herald Tribune
8. Wachovia to pay up to $144M in telemarketing settlement - Baltimore Business Journal:
9. Wachovia to pay up to $144M to settle federal allegations. - Apr. 25, 2008
10. Wachovia Settles OCC Suit for $144 Million | Banks | BAC C FNM FRE JPM WB WM - TheStreet.com
11. Wachovia could pay $144M over telemarketer links | Philadelphia Inquirer | 04/25/2008
12. Wachovia to pay up to $144M to settle marketing allegations - Forbes.com
13. Charlotte Observer | 04/25/2008 | Wachovia to pay consumers
14. Wachovia Agrees to $144M Settlement in Marketing Case
15. Rep Markey Criticizes Wachovia Business Practices Settlement
16. Free Preview - WSJ.com
17. OCC awards $5.3 million e-content contract
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