United States Attorney Announces Settlement With Bank Accused Of Consumer Fraud
RALEIGH – United States Attorney Thomas G. Walker announced that United States District Judge Terrence W. Boyle signed a consent order resolving a civil lawsuit between the United States and Four Oaks Bank and Trust of North Carolina. The civil complaint alleged that the bank facilitated an illegal scheme to take money from consumers’ bank accounts.
"The integrity of our banking system is crucial to the protection of both consumers and businesses, and we will do whatever is necessary to ensure that banks, payday lenders and others using the banking system follow the rules," said U.S. Attorney for the Eastern District of North Carolina Thomas G. Walker.
Advocates at the National Consumer Law Center (NCLC) stated, “The Four Oaks case is a perfect example of what the Justice Department should be doing: cracking down on banks that turn a blind eye to illegal and fraudulent conduct and facilitate illegal payday lending, Ponzi schemes, money laundering for illegal gambling operations, and consumer fraud,” said Lauren Saunders, NCLC’s associate director.
The Complaint alleged that, from at least July 2009 through 2013, Four Oaks Bank knew of, or was deliberately ignorant to, the use of its accounts and access to the national banking system to further a scheme to defraud consumers. Four Oaks Bank, like all other banks, is obligated pursuant to federal statutes and regulations to have effective procedures to prevent the bank from providing to companies engaged in unlawful activity access to the national banking system. According to the Complaint, Four Oaks Bank failed to comply with these and other obligations and, as a consequence, facilitated a wire fraud scheme in which millions of unauthorized debit transactions were charged against consumers' bank accounts.
According to the department's Complaint, Four Oaks Bank worked with a Texas-based third-party payment processor, which is a "middle man" between a bank and a merchant in a financial transaction. Payment processors provide to a wide variety of merchants access to the national payment system. 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's client. In this case, Four Oaks Bank provided payment system access to a Texas-based third-party payment processor, which in turn provided that access to fraudulent merchants.
According to the Complaint, Four Oaks Bank permitted the Texas-based third-party payment processor to originate more than 9.8 million debit transactions, for a total of more than $2.4 billion, against consumers' bank accounts. The Justice Department alleged that Four Oaks Bank ignored guidance by federal bank regulators concerning the risks associated with providing payment system access to a third-party payment processor that serviced fraudulent merchants. Allegedly, these third-party payment processor's merchants included large numbers of Internet payday lenders that engaged in fraud against borrowers.
To resolve the civil action, Four Oaks Bank and the Department of Justice entered into a Consent Order, in which Four Oaks Bank will be required 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. Four Oaks Bank also will be required to comply with a series of measures to prevent it from ever again permitting fraudulent merchants access to the national payment system. Specifically, Four Oaks Bank will be permanently prohibited from providing banking services to any third-party payment processor that serves high risk merchants absent a strict regime of prior and ongoing investigation and monitoring designed to prevent future consumer fraud. Four Oaks Bank also will be required to cooperate fully in other civil and criminal investigations.
This case was prosecuted jointly by the Department of Justice Consumer Protection Branch and the United States Attorney for the Eastern District of North Carolina. The investigation is part of the Consumer Protection Branch's initiative to identify and prosecute banks and payment processors that facilitate financial fraud in the national payment systems, an effort in which the U.S. Postal Inspection Service provides substantial investigative support.