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The Justice Department has come under fire in recent months for its efforts to root out consumer fraud through banks, but Operation Choke Point appears to be gaining new momentum.
March 12 -
The Department of Justice announced a $4.9 million settlement Tuesday with CommerceWest Bank of Irvine, Calif., over charges that the bank knowingly worked with a third-party processor making illegal withdrawals from consumer bank accounts.
March 10
WASHINGTON The Justice Department handed down its third bank settlement under Operation Choke Point on Thursday, bringing a civil complaint against the $544 million asset Plaza Bank of Irvine, Calif., for failing to report a payment processor's relationship with fraudulent merchants.
The announcement of the $1.225 million settlement follows a similar deal released Tuesday with CommerceWest Bank, which is also based in Irvine. The two cases mark a sharp uptick in activity for the agency under Operation Choke Point, after announcing its first deal with Four Oaks Bank in January 2014.
The law enforcement initiative, which targets banks working with fraudsters, has faced strong pushback in recent months from Congress and the financial services industry. Critics argue the program is chilling activity with lawful businesses and warn that it's a backdoor strategy for government to go after legitimate but controversial industries, like payday lenders and gun dealers.
But supporters of the effort note that the cases brought so far are centered on banks that purported to be either willingly doing business with fraudulent companies or actively ignoring the fact.
"Today's complaint alleges that, in exchange for fee income, the bank ignored its responsibilities and looked the other way while a third-party payment processor and its merchants defrauded unsuspecting victims of millions of dollars," said Benjamin C. Mizer, acting assistant attorney general of the Justice Department's Civil Division, in a press release.
The Justice Department charges that top executives at Plaza Bank were also investors in a third-party processor that worked with fraudulent merchants to take unauthorized withdrawals from consumer accounts between July 2007 and mid-2010. The bank's chief operating officer reportedly brushed aside concerns raised by the top compliance officer around some of these activities without acknowledging the conflict of interest.
The Justice Department complaint, filed in the U.S. District Court for the Central District of California, alleges that the bank did not put a stop to the relationship even when roughly half of the debits made through the processor were rejected by customers' banks and the bank received hundreds of consumer warnings.
Plaza said in a press release that it has had no relationships with third-party processors for more than four years and that the bank "fully cooperated" with the Justice Department investigation.
The problem with the processor was discovered when the bank was sold to an equity firm in June 2009 and put under different management, though government officials charge the newly installed executives took months to wind down business with the processor.
"This was an issue we inherited when we took over the Bank, and as of December 31, 2014 we fully reserved for this," Plaza Bank Chief Executive Gene Galloway said in a press release. "We are pleased to finally put this matter behind us, and we will continue to focus on our core businesses commercial and private banking for our customers."
