Plaza Bank settles U.S. suit

Federal prosecutors accused former managers at Plaza Bank in Irvine of deliberately ignoring red flags and letting a payment-processing client withdraw millions of dollars from consumer accounts at other banks without permission.

Plaza agreed Thursday to pay more than $1.2 million to settle the civil lawsuit filed by the U.S. Department of Justice in federal court in Santa Ana.

The settlement, filed with the lawsuit Thursday, also imposed harsh restrictions on future business with third-party payment processors.

Payment processors are intermediaries between banks and merchants. They open bank accounts in their own names and, for a fee, handle banking activities on behalf of merchants with no direct relationship with the bank.


Their services include producing what are known as remotely created checks — drafts on bank accounts that are represented to have been pre-authorized by the account holders.

Because of the possibility for abuse, banks are required to monitor such customers and report suspicious behavior to federal authorities.

Many merchants that use payment processors are legitimate, the government lawsuit noted, but consumer groups have long said others are scam artists, including telemarketers preying on the elderly.

In the Plaza case and a similar one last week at CommerceWest Bank, also in Irvine, federal authorities alleged that half the supposedly pre-authorized withdrawals were contested by aggrieved consumers and their banks.

The settlement requires Plaza, a 9-year-old bank with $554 million in assets, to cooperate for five years with criminal and civil investigations of former officers, directors and employees.

The bank did not admit liability.

"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," the Justice Department said.

In a statement, the bank said it replaced the managers and soon after in 2010 stopped doing business with the payment processor, which prosecutors did not identify.

Near collapse during the financial crisis, Plaza was ordered by regulators to raise capital and strengthen management. An investor group raised $19 million in 2009 to restructure the bank under new management.

The bank said Plaza has had no further relationships with third-party payment processors.

Twitter: @ScottReckard