Financial Fraud: Zions First National Bank Settled Allegations Facilitated Consumer Fraud By Providing Payment Processing Services To Telemarketing And Internet Merchants

U.S. Attorney Announces $3.6 Million Settlement With Bank Accused Of Consumer Fraud – Zions First National Bank

PHILADELPHIA – ZB, N.A, formerly known as Zions First National Bank, N.A. (Zions), of Salt Lake City, Utah, settled allegations by the United States Attorney’s Office for the Eastern District of Pennsylvania that Zions and its affiliated payment processor facilitated consumer fraud by providing payment processing services to telemarketing and Internet merchants that were debiting money illegally from consumers’ bank accounts. Under a civil settlement reached between ZB and the government, the bank will pay a civil money penalty of $3.6 million to the United States Treasury, announced Acting United States Attorney Louis D. Lappen.

The government alleges that Zions and its affiliate Modern Payments provided ACH debit processing services to a number of telephone and Internet marketing merchants that were engaged in fraud against consumers. The government further alleges that Zions and Modern Payments knew or were willfully blind to the fact that the marketing merchants were engaged in fraud campaigns against consumers. Modern Payments, through Zions, debited money from consumers’ bank accounts and transferred that money to the marketing merchants.

Banks are a critical key in many consumer fraud schemes. After a fraudulent marketer obtains bank account information from a consumer, the fraudulent marketer still needs to gain access to the banking system in order to take the consumer’s money. Fraudulent marketers have a difficult time opening their own bank accounts because of laws designed to prevent criminals from accessing the banking system. To overcome this obstacle, fraudulent marketers often obtain indirect access to the banking system through a third-party payment processor that can more easily establish a relationship with a bank.

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The government alleges that Zions and Modern Payments knew of, or were willfully blind to, ten Modern Payment’s telemarketing and Internet marketing clients using Modern Payments to access the banking system through Zions to engage in consumer fraud schemes. Specifically, the government alleges that Zions and Modern Payments knew of or were willfully blind to indicators of consumer fraud, including high rates of ACH debit transactions returned from consumers’ accounts as unauthorized. The government also alleges that Zions and Modern Payments facilitated the fraud campaigns of two marketers by initiating debits against consumers’ bank accounts despite knowledge or being willfully blind to the fact that the debits violated rules that prohibited both processing payments associated with outbound telemarketing, and recurring payments pursuant only to a voice-authorization. The government also alleges that Modern Payments failed to conduct sufficient due diligence of certain of its marketing clients before providing them with access to consumers’ bank accounts — despite Zions’ internal skepticism of the marketers’ business practices and acknowledgement that Zions would be at risk for the marketers’ conduct.

The government contends that Zions and Modern Payments’ conduct violated the Financial Institutions Reform, Recovery and Enforcement Act, 12 U.S.C. § 1833a (“FIRREA”). FIRREA authorizes the imposition of civil monetary penalties for violations of enumerated criminal statutes affecting a federally-insured financial institution. These crimes include mail fraud and wire fraud.

Modern Payments received $1.2 million in fee revenue from the fraudulent marketers. In addition to the $3.6 million penalty paid to the United States Treasury in connection with this settlement, pursuant to a separate class action settlement approved by a Federal court, ZB has established a $37.5 million compensation fund for the victims of the frauds.

The case was handled by Assistant United States Attorney Joel M. Sweet and Investigator Jeffrey R. Braun.

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