April 25 A U.S. court on Friday ordered North Carolina's Four Oaks Bank to pay a penalty of $1.2 million over claims it failed to protect consumers' bank accounts in a win for federal prosecutors investigating banks doing business with payday lenders.
The civil penalty was the result of a complaint filed in January in U.S. District Court in eastern North Carolina that said the bank had been "deliberately ignorant" when dealing with merchants who were defrauding customers.
A settlement, including the payment, was proposed when the complaint was filed. The bank said in a statement in January that as part of the deal it did not admit to the allegations or to any liability.
In their complaint, U.S. prosecutors alleged Four Oaks Bank allowed a privately owned third-party payment processor in Texas to illegally process around $2.4 billion in return for more than $850,000 in fees.
Almost all of the Texas processor's business was with Internet payday lenders, the complaint said. The payday lenders offer fast cash on the web - usually a few hundred dollars - at often exorbitant interest rates that can range from 400 percent to 1,800 percent or more, it said.
The case was part of a justice department push, known as "Operation Choke Point," to investigate whether banks enabled payday lenders to illegally siphon billions of dollars from U.S. checking accounts, according to a report in the New York Times.
"The Department of Justice is committed to holding accountable financial institutions that know they are facilitating fraud that harms consumers, or are deliberately ignorant to that fact," said U.S. assistant attorney general Stuart Delery in a statement.
Some congressional lawmakers have criticized the effort, accusing the Department of Justice of trying to covertly quash the payday lending industry.
The case is United States of America v. Four Oaks Fincorp, Inc. et al, U.S. District Court in the Eastern District of North Carolina, No. 5:14-cv-00014 (Reporting by Mica Rosenberg in New York; Editing by Bernard Orr)