Four Oaks Bank agrees to $1M fine to settle DOJ suit

Posted January 9, 2014 2:12 p.m. EST
Updated January 9, 2014 6:48 p.m. EST

— One day after the U.S. Justice Department accused Four Oaks Bank and its parent company of allowing illegal activity to flow across its books, the Four Oaks-based bank agreed Thursday to pay $1.2 million to settle the case.

The proposed deal, which also requires the bank to assist federal authorities in possible criminal investigations of its executives, board members and customers, still must be approved by a judge.

"Four Oaks is not admitting to any facts ... nor is it admitting to any liability or wrongdoing," attorney Jeff Knowles said.

In a civil lawsuit, the Justice Department alleged that Four Oaks Bank has, since 2009, provided an unidentified third-party payment processor direct access to the Federal Reserve Bank of Atlanta in exchange for sizable fees. The arrangement allowed the Texas-based  processor to debit customer accounts without authorization.

Bank executives turned a blind eye to repeated complaints from people who said the processor allowed payday lenders to rack up exorbitant fees and interest on loans that were supposedly paid off, according to the suit, and they also ignored a notice from the Arkansas Attorney General's Office that some people in that state were being charged for payday loans even though such loans are illegal in that state.

The suit alleged that the Texas processor also became a conduit for other third-party processors, include Redfall, which federal prosecutors linked to online gambling, and Rex Venture Group, which processed $60 million in transactions through Four Oaks Bank in a pyramid scheme known as ZeekRewards.

Knowles and Four Oaks Bank officials told a federal judge Thursday that the bank became concerned about its agreement with the processor more than a year ago, but the company wouldn't let the bank out of the deal.

"Some contracts favor one party more than another party," Knowles said after the court hearing. "It made it more difficult to terminate the agreement, let's just put it that way."

Four Oaks Bank agreed to pay a $1 million civil penalty and to forfeit $200,000 to the United States Postal Inspection Service's Consumer Fraud Fund as proceeds of the wire fraud alleged in the lawsuit.

Under the proposed deal, the bank also must cut all ties to the Texas processor within 30 days and immediately halt the debiting of customer accounts by the processor. In the future, it can work with third-party processors only after establishing that those companies don't have a history of unauthorized debits and don't engage in deceptive business practices.

Every six months for the next 10 years, the bank must certify to the government that it has met every condition of the agreement.

Knowles said the federal government is going after numerous banks over similar activities.

"The government is trying to raise the bar generally in trying to get banks to be more of a watchman or a policeman on the beat, and I think that will occur," he said.