Banking Law

Wachovia to Pay $144M re Claims Bank Didn't Safeguard Customer Accounts


In a case that has resulted in stricter regulatory standards for all national banks, one of the country’s biggest financial institutions has agreed to settle for $144 million a federal regulator’s claims that it didn’t do enough to prevent account holders from abusive practices by telemarketers who were also its clients.

Without admitting wrongdoing, Wachovia Corp. has agreed to refund up to $125 million in charges to customers, many of whom were elderly, by telemarketers and other payment processors, pay a $10 million fine and fund $8.9 million worth of consumer education programs, Bloomberg reports. In settlement of the case, which was brought by U.S. Office of the Comptroller of the Currency, Wachovia also agreed to change its policies concerning future transactions by telemarketers, payment processors and others who ask the bank to pay “remote” checks that aren’t signed by account holders.

In a press release, the OCC notes that it has issued “updated guidance” to all national banks “regarding the need for effective due diligence, underwriting, and monitoring of entities that process payments for telemarketers and other merchants.” Details are provided in in OCC Bulletin 2008-12.

The OCC explains in the Wachovia release that telemarketers got customer account information by selling individuals questionable products over the phone. They then withdrew money, either for products that were never provided or without customer authorization, according to the regulator. It blames Wachovia’s risk- and loss-management departments for “fail[ing] to terminate these account relationships or otherwise correct the problem.”

The bank will now make restitution to customers who file claims.

“This situation was unacceptable, and we regret it happened,” Christy Phillips Brown, a Wachovia spokeswoman, told Bloomber in a phone interview. “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.”

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