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Financial Services Law Insights and Observations

Payments processor fined $20 million by State Money Transmission Regulators and State AGs

State Issues Settlement DFPI Enforcement Mortgages

State Issues

On October 16, a national payment processor entered into two settlement agreements totaling $20 million with 44 state and territory money transmission regulators and 50 state and territory attorneys general to resolve issues stemming from alleged erroneous payment transactions.  The alleged erroneous payments involved the mistaken initiation of payments on behalf of almost 480,000 mortgage borrowers, with the total amount at issue totaling nearly $2.4 billion.

According to the settlement entered into between the payment processor and the money transmission regulators, who were working through the Multi-State Money Service Business Examination Taskforce, the mistaken payments resulted from a breakdown of internal data security controls that allowed customer data intended for use in the testing of processing code to trigger actual payments.  The payment processor, who regularly provided payment processing services to a large residential mortgage lending and servicing company, was using actual customer mortgage payment data for test purposes.  As alleged in the settlement, it was determined that in the process of conducting testing on processing code to optimize the payment processors’ payment platform, more than 1.4 million payment entries were unintentionally and erroneously processed.  This erroneous payment processing was said to be primarily the result of “circumvention of internal data security controls and a lack of segregation between internal production and testing environments.”

The settlement reached with the money transmission regulators requires the payment processor to maintain a comprehensive risk and compliance program and to provide regular reporting to a state regulator monitoring committee to ensure the adequacy of its risk management programs. 

Under the terms of the settlement with the money transmission regulators, the payment processor is required to pay a total of $10 million, with approximately $9.5 million of that total being shared evenly by each participating state, with the remaining roughly $500,000 being used to cover the administrative costs of the investigating states.  Under the agreement with the state attorneys general, the payment processor is required to pay an additional $10 million to the various participating states and territories.  These amounts are in addition to the $25 million fine previously agreed to in the CFPB Consent Order, bringing the total amount to be paid by the payment processor to $45 million.