Civil Division Blogs
Courtesy of the Civil Division’s Consumer Protection Branch
Frauds targeted at consumers threaten to cause significant harm to the American public. The Justice Department has made it a priority to hold the perpetrators of consumer fraud accountable. In the past few weeks, we have successfully prosecuted the operators of lottery scams, the promoters of fake business opportunities, and the criminals behind a telemarketing fraud targeting Spanish-speaking customers. But fraudsters often can’t act alone. They need access to the banking system to get money from their victims. And when financial institutions choose to process transactions even though they know the transactions are fraudulent, or willfully ignore clear evidence of fraud, they are profiting from illegal activities as well as breaking federal law. That’s why we are proud to highlight an important result in one of the first civil cases we have brought against a financial institution for unlawfully facilitating a fraudulent scheme to take money from consumers’ bank accounts. On April 25, 2014, the U.S. District Court for the Eastern District of North Carolina entered a consent order and approved a settlement resolving the department’s complaint against Four Oaks Bank. According to the department’s complaint, Four Oaks unlawfully allowed third party merchants to work through the bank to defraud consumers. Four Oaks’ clients included a Texas-based third-party payment processor – a company that acts as an intermediary between a bank and a merchant in a financial transaction, and often provides access to the national payment system to a wide variety of merchants. At a merchant’s direction, a payment processor will originate a debit transaction against an individual consumer’s bank account, receive the consumer’s money into its own bank account, and transmit the money to its merchant client. Four Oaks, according to the complaint, was specifically informed that many of the transactions requested by the third-party payment processor and facilitated by the bank were reported as fraudulent. Four Oaks received hundreds of notices from consumers’ banks that the people whose accounts were being charged had not authorized a debit transaction originated by the third-party payment processor. The bank also knew that at least 13 of the merchants served by the third-party payment processor had over 30 percent of the attempted debit transactions returned or charged back, including one merchant with a return rate of over 70 percent. (A 30 percent rate is more than 20 times the national average.) And the bank had substantial evidence of efforts to conceal the true identities of the merchants that were serviced by the third-party payment processor. Nevertheless, according to the department, Four Oaks permitted the third-party payment processor to originate $2.4 billion of debit transactions against consumers’ bank accounts in exchange for more than $850,000 in fees that were paid to the bank. The consent order approved by the court requires Four Oaks Bank to pay $1 million to the U.S. Treasury as a civil monetary penalty and to forfeit $200,000 to the U.S. Postal Inspection Service’s Consumer Fraud Fund. It also obligates Four Oaks to comply with a series of measures designed to prevent it from ever again permitting fraudulent merchants access to the national payment system. Specifically, the order permanently prohibits Four Oaks from providing banking services to any third-party payment processor that serves merchants determined by banking regulators to be high-risk absent a strict regime of investigation and monitoring designed to prevent future consumer fraud. The Four Oaks case was prosecuted by Assistant U.S. Attorney Joel Sweet of the Eastern District of Pennsylvania, and Trial Attorneys John W. Burke and James W. Harlow of the Civil Division’s Consumer Protection Branch, with assistance from Assistant U.S. Attorney G. Norman Acker, III of the Eastern District of North Carolina. Investigative assistance was provided by the U.S. Postal Inspection Service. The result in this case demonstrates that banks and third-party payment processors cannot profit from violating federal law. Of course, we recognize that most of the businesses that use the banking system are not fraudsters. We’re committed to ensuring that our efforts to combat fraud do not discourage or inhibit the lawful conduct of these honest merchants. Our goal in investigations like Four Oaks is simply to enforce the laws that make the financial marketplace work for consumers.
- it has been prepared, packed, or held under insanitary conditions, and
- may have become contaminated with filth, or
- injurious to health.
Four years removed from one of the greatest economic crises in history, consumers are still reeling from the aftereffects. So, many consumers, feeling the crunch of growing credit card debt, are seeking help from companies holding themselves out as debt relief providers. And getting nothing in return.These companies generally offer to settle a consumer’s debt with creditors for substantially less than the debt’s principal through monthly payments that the company holds in escrow. Unfortunately, many of these companies not only fail to fulfill their promises to consumers, but fail to offer any services at all. Companies charge large upfront fees, or multiple hidden fees. Often, a substantial portion of a consumer’s monthly payment goes to the company’s fees, with little to nothing offered toward reducing the debt’s principal. The Department of Justice Consumer Protection Branch, in collaboration with its investigative partners, is working to prosecute such companies. But we need your help. So, if you are contemplating debt relief services, the following tips may help you avoid scams:
- Fraudulent debt relief companies will often make claims of being able to negotiate a one-time settlement with creditors that will reduce a consumer’s principal by fifty percent or more. The Consumer Federation of America, an association of non-profit consumer organizations, warns that such a promise is a virtual impossibility.
- If you have trouble making credit card payments, immediately call the creditor to work out a payment plan. If that is unsuccessful, a non-profit credit counseling service may be able to help you. These services may charge a small fee, but the cost will be substantially less than using a debt relief company. An excellent resource for locating a local credit counseling service is the National Foundation for Credit Counseling, at www.nfcc.org.
- If a company offers a “one size fits all” solution, what they are really offering is a “no size fits anyone” problem. Legitimate credit counseling services tailor a consolidation plan to each consumer’s individual needs.
- Do not be afraid to ask questions. Demand that the company disclose set-up and maintenance fees, and that these fees be set in writing. According to the Consumer Federation of America, consumers should not pay more than $50 for the set-up fee and $25 for monthly maintenance of the account.
- Do not rely on the company’s website. Conduct your own searches of the company – the Better Business Bureau and state consumer protection agencies are excellent resources.
- Be wary of those that contact you through advertising such as flyers, radio/television or the Internet with promises to modify the terms of your mortgage; if their promises seem too good to be true, they usually are.
- Be suspicious of loan modification services that require signing a contract or paying an up-front or monthly fee. Advance fees are generally prohibited by law. Loan counseling and modification services are generally provided free from your lender and/or a Department of Housing and Urban Development (HUD) counseling center. Contact HUD’s toll-free 24 hour hotline at 888-995-HOPE (4673) to immediately speak to an expert advisor in more than 160 languages.
- Never transfer title of your property, make mortgage payments to someone other than your lender, or stop making mortgage payments altogether — these are guaranteed ways to put your financial investment at risk.
- Carefully inspect the names, seals, logos and representations made by mortgage rescue companies. They may be deliberately designed to deceive borrowers into believing an affiliation with a government agency exists. The purpose of this is to trick borrowers into believing they are entitled to the benefit of a government program rather than committing to a loan that must be repaid. A government agency will never require advance fees, or guarantee a specific result.
- Some scammers pushing reverse mortgage loans are in fact trying to unload other financial products on borrowers. Be careful to avoid brokers that want you to obtain a loan in order to buy other products such as long-term care insurance, annuities, or other investments.
- Contact your local telephone company, tell the telephone company of the cramming, and instruct the company to remove the false charge and give a credit for false charges on any previous bills, and
- Submit a complaint summarizing the false charges to the Federal Trade Commission.