When a telemarketer called and offered to give Mary Faloney a $5,000 government
grant that she would not have to repay, the disabled grandmother living
on Social Security gave the caller her personal bank account number to
cover a $298 processing fee. The telemarketer charged Faloney’s
bank account the fee, but she never received the government grant.
Faloney also gave her account number to a second telemarketer, who promised
her a credit card and gift certificates in return for a $200 fee. The
telemarketer took $200 from Faloney’s account, and, although she
received a credit card and gift certificates, they turned out to be worthless.
Last year, Faloney brought a lawsuit on her own behalf and on behalf of
others who say they fell victim to similar telemarketing scams. But the
suit is not against the telemarketers that took the money; rather, the
defendant is Wachovia Bank, which allegedly allowed a payment-processing
company for the telemarketers to use accounts at Wachovia to fraudulently
debit money from the plaintiffs’ accounts. (Faloney v. Wachovia
Bank, No. 2:2007cv01455 (E.D. Pa. filed Apr. 11, 2007).)
Now, new documents have emerged in the case suggesting that Wachovia employees
were well aware of fraud allegations against the payment-processing company
involved in the scheme, yet the bank continued to allow the money to flow
through its accounts.
In Faloney’s case, the telemarketers gave her personal bank account
number to a company called Payment Processing Center, Inc. (PPC), which
used that information to prepare unsigned bank drafts-checks without signatures-on
Faloney’s account. PPC deposited the drafts into its account at
Wachovia. Wachovia then forwarded the drafts to Faloney’s bank for
payment. Once Faloney’s bank credited the amount to PPC’s
account at Wachovia, PPC remitted the amount, less its fee, back to the
Such third-party payment processing is legal only if customers have approved
the transactions. (PPC is not named as a defendant in the lawsuit; last
year the U.S. attorney for the Eastern District of Pennsylvania obtained
a permanent injunction prohibiting PPC’s owners from engaging in
any activity in which unsigned bank drafts are used to process payments
Faloney’s lawsuit against Wachovia charges that the banking services
it provided were an essential element in the scheme devised by PPC and
the telemarketers to obtain funds from the plaintiffs’ bank accounts.
The suit also alleges that, despite Wachovia’s knowledge that PPC
was engaged in unlawful activity, the bank continued to provide its services
to PPC involving the fraudulent demand drafts.
Documents filed in the case, especially internal Wachovia e-mails, detail
that the bank knew about the fraud allegations involving PPC and other
payment processors for years, as it had received warnings from other banks
and several federal agencies about ongoing telemarketing scams involving
payments processed through Wachovia accounts.
In one Wachovia e-mail, a bank loss-management official warned her colleagues
that an account used by telemarketers had drawn thousands of complaints:
“YIKES!!! Now the crux of the problem is that ALL their deposits
are THIRD PARTY DRAFTS!!! DOUBLE YIKES!!!! There is more, but nothing
more that I want to put into a note.” Wachovia’s own fraud
investigator also raised questions about the accounts.
Certification of a nationwide class action is pending. Howard Langer of
Philadelphia, the attorney who filed the complaint, noted that the class
“easily involves half a million people, most of them elderly. The
whole thing was to take advantage of the fact that they’re not the
most sophisticated people” about consumer fraud.