Wachovia reaches $125M settlement with US government agency

Wachovia Bank has entered into a settlement agreement with the Office of the Comptroller of the Currency (OCC), which is directing the bank to make restitution to consumers harmed by its relationships with numerous teleservices providers and third-party payment processors.

According to the formal agreement, Wachovia maintained account relationships with certain payment processors for telemarketers from around June 1, 2003 until December 31, 2006. The agreement states the bank is required to pay $125 million, which represents the estimate of the maximum potential restitution.

Additionally the bank must contribute $8.9 million to consumer education directed at the elderly, who accounted for many of the victims, as well as a $10 million civil money penalty to the US Treasury. This settlement is one of the largest penalties ever filed by the OCC.

The settlement concluded that the bank engaged in unsafe or unsound practices involved in the use of remotely created checks (RCCs). These checks are not created or signed by the accountholder, but rather include text such as “authorized by your depositor, no signature required.” The telemarketers obtained account information by offering consumers products or services over the phone. The telemarketer would then create an RCC and deposit it into a Wachovia account.

Many of these RCCs were disputed by consumers who said the checks were never authorized or that they never received the products or services sold by the telemarketers.

According to Kevin Mukri, a spokesman for the OCC, there are certain guidelines out there regarding due diligence that should be taken in monitoring these types of accounts. “Had these systems been in place [Wachovia] could have caught this sooner,” he said.

Michele Shuster, partner at Mac Murray, Cook, Petersen & Shuster LLP and previously chief of the Ohio attorney general’s consumer protection section, said vendor management is critically important.

“Regulators are sending out a very strong message that if you’re going to use a vendor you’re going to be responsible for the type of actions that they take and if they violate the law. Wachovia wasn’t doing what they should have been to stop those practices,” Shuster said. “If banks are receiving complaints from consumers, senior management needs to pay very close attention to those complaints, identify the pattern and take action against whatever is causing the problem.”

Inquiries to Wachovia were not returned by press time.

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