Compliance Blog

The OCC recently hammered Wachovia for its lack of oversight regarding certain relationships with payment processors.  Hammered to the tune of $140 million or more.  Here's some information from the OCC:

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or payment processor would create an RCC and deposit the instrument into an account at Wachovia, causing funds to be withdrawn from consumers’ accounts...

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.

Here's a link to the OCC press release, which has links to the settlement agreement.  This news item caught my attention for a number of reasons.

• While this affects Wachovia and comes from the OCC, it might be seen by consumer groups more broadly.  In essence, a financial institution is being forced to make consumers whole who were harmed by entities that were associated with the financial institution.
• Does this decision increase due diligence requirements for all institutions?
• How many credit unions have business accounts for payment processors?  And if they do, will NCUA use the Wachovia situation as an excuse to poke around these accounts?

It is a fairly complicated set of facts that led to the settlement agreement.  I urge you to read it in its entirety.