FYI: OCC Enters Into $5.2M Settlement re: Inadequate Monitoring of Remotely Created Check Activity

The Office of the Comptroller of the Currency recently entered into the attached settlement agreement and consent order for civil money penalty with a national bank, requiring the bank to make $5.1 million in restitution to over 60,000 consumers allegedly adversely affected by the bank's alleged inadequate monitoring and controls relating to Remotely Created Checks used by a third party payment processor and several telemarketers and internet merchants.  The bank is also required to pay a $100,000 civil money penalty to the U.S. Treasury.

The practices cited by the OCC in the settlement involved the use of remotely created checks, or RCCs, by telemarketers, internet merchants, and the payment processor that maintained account relationships with the Bank. An RCC is a check that is not created by the accountholder and does not bear the accountholder's signature. Instead, the signature block of the check includes text such as “authorized by your depositor, no signature required.”

A large percentage of these RCCs were returned to the bank by individuals, or their financial institutions, who said the checks were never authorized or that they had never received the products or services promised by the telemarketers or merchants. In some cases, the return rates exceeded 60% of the total deposited.

More specifically, the OCC asserted that the bank maintained:  (a) inadequate due diligence prior to opening the accounts with the various third party companies; (b) inadequate monitoring of the rates of return on the RCCs, demand drafts, and other similar instruments deposited into the accounts; and (c) inadequate policies, procedures, systems, and controls relating to the bank’s relationship with the third parties.

The OCC concluded that the bank engaged in unsafe or unsound practices during the course of its relationships with the payment processor and the telemarketers and internet merchants, and unfair practices within the meaning of the Federal Trade Commission Act.  The account relationships with the payment processor and merchants ended in August 2007.

In addition to the monetary components of the settlement, the bank agreed to develop new policies and procedures with respect to RCCs, before accepting any new customers that regularly deposit RCCs.

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

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Chicago, Illinois  60602
Direct:  (312) 551-9320 

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RWutscher@kw-llp.com

http://www.kw-llp.com

 

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