Wachovia to Pay 144M Settlement
Posted on April 26, 2008
Filed Under Business, Life Strategy | Leave a Comment
Wachovia to pay $144M settlement
Federal regulators accuse the Charlotte, N.C.-based bank of not acting quickly enough to protect customers from telemarketers.
Last Updated: April 25, 2008: 5:44 PM EDT
WASHINGTON (AP) — 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.
This recent headline caught my attention because I couldn’t see why Wachovia had to pay this money if they did not commit the crime.
Evidently fraudulent telemarketers were taking advantage of senior citizens and anyone else they could find who would give them their bank account number. Here is where the story becomes very interesting.
Telemarketers would make sales calls, obtain customers’ bank account information, create a check and withdraw cash from customers’ accounts.
How did telemarketers create a check and how did Wachovia become liable for the actions of the telemarketers?
The telemarketers created checks known as Remotely Created Checks or Demand Drafts.
What is a Remotely Created Check or Demand Draft?
It is basically a check that does not have the account holder’s signature on it, but is instead issued by a third party, usually for goods or services for which the account holder has reportedly purchased and authorized the demand draft for payment. Demand drafts are commonly issued by telemarketers.
An Unauthorized Demand Draft or remote check is one that the account holder claims they did not authorize to be initiated.
For your information, Credit Card Companies use these vehicles all the time when you authorize payments to them to avoid late fees because you did not take care of your payment in a timely manner.
So why is the bank liable and which bank is held responsible – the issuing bank or the receiving one? This notice was issued by the Feds back in 2006:
For immediate release
The Federal Reserve Board on Monday approved amendments to its Regulation CC that define “remotely created checks” and create transfer and presentment warranties to shift liability for an unauthorized remotely created check to the institution where it is first deposited.
In other words, the liable bank is the one where the remote check is deposited.
What about the telemarketers, do they get off free? Not hardly – but here is the kicker. Once they are caught the prosecutors have to try and find the money and these crooks are very good at hiding it.
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