$144M settlement in Wachovia marketing case

April 28, 2008 4:43:49 PM PDT
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 didn't act quickly enough to block telemarketers and payment processors who maintained their accounts at the bank. The marketers obtained customers' bank account numbers while selling products including vouchers for discount travel and groceries and medical discount plans.

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. "We will work diligently to provide restitution to consumers affected by the situation and to educate consumers."

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.

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. 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.

Federal and state officials have been pursuing cases against the telemarketing firms involved in the case.

In 2006, federal prosecutors filed a civil case against Newtown, Pa.-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.

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.

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.

Under the terms of the settlement, approved Thursday, Wachovia is required to return payments to consumers who have claims against Your Money Access.

Wachovia also agreed to take a series of steps designed to ensure the problem doesn't happen again.

Wachovia shares rose 85 cents, or 3 percent, to $28.23 in afternoon trading.

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AP Business Writer Ieva M. Augstums in Charlotte, N.C. contributed to this report.

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