Wachovia Bank's Admonition & Award from OCC

On April 25, 2008, the U. S. Comptroller of the Currency, Administrator of National Banks, issued a News Release entitled "OCC Directs Wachovia to Make Restitution to Consumers Harmed by the Bank’s Relationships with Telemarketers and Payment Processors".

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. * * *

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. * * *

For details, you can read documents in PDF format provided by OCC's News Release, under "related links":

• Consent Order for a Civil Money Penalty
  
• Formal Agreement
  

This is a big settlement for the OCC, according to an article entitled "Wachovia Penalized $144 Million for Telemarketing Abuses -- Telemarketers preyed on thousands of senior citizens", posted on April 26, 2008, by Consumer Affairs, which had tracked complaints about Wachovia:

It's the second-biggest settlement ever for the Office of the Comptroller of the Currency (OCC), the agency that regulates national bank[s].

Wachovia is also facing at least two class-action lawsuits over its relationship with the telemarketers who allegedly harmed between 350,000 and 500,000 consumers. * * *

In the telemarketing case, OCC investigations said that from June 2003 to December 2006, the bank worked with several telemarketers and payment processors that obtained bank-account information over the phone from thousands of elderly and poor consumers by offering to sell them identify-theft certificates, discount travel vouchers and other questionable products or services. * * *

See also "Wachovia settles with OCC for $144M", posted on April 25, 2008, by the Philadelphia Business Journal:

"This situation was unacceptable and we regret it happened," Wachovia said in a statement.

"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."

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.

The bank also pointed out that it was not directly involved in the telemarketing activity or soliciting of account information from consumers. But at the time of this incident, it provided banking services to some telemarketing companies and companies that processed payments for the telemarketers. * * *

Why is this settlement noteworthy for this Blog's readers? Because elderly folks often were the targets of the telemarketers and payment processors who had utilized the financial services of Wachovia Bank.

Indeed, the settlement requires Wachovia to fund some "consumer education programs directed at the elderly."

In its regulation of national banks, OCC seeks to reduce fraud at an institutional level; and in its outreach to the public, OCC seeks to educate consumers to reduce fraud at an individual level. For example, see its Consumer Protection advisories posted online, including:

• Avoiding Cashier's Check Fraud
• "Phishing"
• OCC Anti-Fraud Resources
• Protecting Yourself Against Identity Theft
• Unfair and Deceptive Practices
  

To advance these objectives, OCC then updated its regulatory guidance to all national banks regarding their dealings with "higher risk" customers, such as telemarketers and merchants who process payments.

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.

Ironically, just two months prior to the settlement, OCC had recognized Wachovia Bank by an award, according to an article, dated February 28, 2008, posted on Wachovia's website, entitled "Wachovia Earns Outstanding CRA Rating":

Wachovia has earned an "Outstanding" Community Reinvestment Act (CRA) rating, the highest possible, from the Office of the Comptroller of the Currency (OCC). Only 16 percent of banks regulated by the OCC achieve the "Outstanding" rating.

Regulators from the OCC analyzed Wachovia's lending, investing and service activities for the period of July 1, 2003, to June 30, 2006. The merger of SouthTrust Corp. and Wachovia Corp. occurred during this time.

"I'm proud that Wachovia has earned continuous "Outstanding" CRA ratings, the highest rating possible, since 1995," said Ken Thompson, Wachovia Chairman and CEO.

"This achievement shows that reaching low- and moderate-income families and communities remains a priority for us, even as we expand into new markets." * * *

Even more ironic is the nearly-identical time period when OCC studied Wachovia Bank to arrive at its actions: one as an admonition (June, 2003 - December, 2006), and the other as an award (July, 2003 - June, 2006).